RBI will review the monetary policy again on September 29.
A series of interest rate cuts in India has failed to lead to cheaper commercial lending, leaving Asia's third largest economy to grow at only 6 per cent this year, the central bank said on Tuesday.
The Reserve Bank of India kept its policy interest rate unchanged at a five-year low of 6.50 percent on Tuesday.
Analysts have started talking about at least a 25 bps cut immediately.
The rapid deceleration in prices has ignited a debate in New Delhi whether Asia's third-largest economy is heading towards deflation.
A fall presents an opportunity to buy rate-sensitive stocks.
Shares of Anil Ambani-led Reliance Communications and Reliance Infrastructure gained five per cent each on expectation that rate cuts would help lower the interest cost burden of these companies.
High interest rates have been discouraging fresh investments and dragged industrial production down for nearly two years now.
In the Sensex pack, Sun Pharma was the biggest gainer, rallying 4.48 per cent, followed by Bajaj Auto, Tata Motors, Coal India, Hero MotoCorp, Maruti and HCL Tech, rising up to 3.01 per cent. While, RIL, PowerGrid, HDFC, L&T, IndusInd Bank, NTPC and Bajaj Finance declined up to 1.50 per cent.
High crude oil prices, which the central bank perceives as a risk to inflation, may limit the extent of rate cut to 25 basis points rather than 50 bps, economists said.
Jet fuel (ATF) price on Tuesday was hiked by 4.2 per cent but that of commercial LPG used in non-residential establishments such as hotels and restaurants was cut by Rs 115.5 per 19-kg cylinder reflecting global energy trends. Aviation turbine fuel (ATF) price was hiked by Rs 4,842.37 per kilolitre, or 4.19 per cent, to Rs 120,362.64 per kl in the national capital, according to a price notification of state-owned fuel retailers. This reverses a 4.5 per cent cut in jet fuel prices affected last month.
'Your decisions should not be driven by your view on the market, but by your objectives, risk appetite, and time horizon.'
Traders rejoice when the Fed drops the rate, but...
If numbers change, there will be scope for more rate cuts.
The banking industry is hoping for more rate cuts by the Reserve Bank, which in turn, will help soften both deposit and lending rates, a top financial industry expert said.
Reserve Bank of India (RBI) Governor Raghuram Rajan's decision to cut rates last week surprised even top officials.
Though the Reserve Bank would want to keep excess liquidity under check to contain inflation, it may still go for a CRR cut to enable banks lower interest rates in order to spur growth through increased credit offtake.
'We emphasise the importance of not basing investment decisions solely on electoral outcomes.' 'Instead, focusing on investing in high-quality businesses capable of prospering regardless of the political landscape is paramount.'
Rajan's colleague in the ministry, Economic Affairs Secretary Arvind Mayaram, also expressed hope on Thursday that the central bank would vote for growth.
From the Sensex basket, JSW Steel, Tata Steel, UltraTech Cement, NTPC, Larsen & Toubro and HDFC Bank were the major gainers. Titan, Nestle, Bharti Airtel and IndusInd Bank were among the laggards.
They sought further cut in interest rates as well as reforms.
Fall in both WPI and CPI inflation to pressure RBI, say analysts
The RBI cited lower-than-expected inflation, weak crude prices and weak demand, as well as the government's commitment to sticking to a fiscal deficit target as reasons.
Price rise in services sector after the goods and services tax (GST) gets implemented and the pay hike of central government employees will make inflation control a tough job for the central bank
Rajan's deputy Khan cautions against early celebration of falling inflation, unhedged forex exposure.
Shares of rate sensitive sectors such as realty, infrastructure, banking and automobiles ended higher ahead of the Reserve Bank of India (RBI) mid-quarter policy review on June 17.
October infrastructure output, which contributes nearly 38 per cent to the industrial output index, was up 3.2 per cent annually.
According to bankers and economists, there is room for further rate cut by the RBI as retail and wholesale inflation rates have remained benign.
The chances of a rate cut in September have risen.
Among Sensex firms, Power Grid and Tata Steel fell more than 2 per cent. HDFC Bank, State Bank of India, IndusInd Bank, Hindustan Unilever and NTPC were among the major laggards. Nestle, Bajaj Finserv and Bajaj Finance were among the gainers.
Street expects RBI to keep CRR unchanged, opt for open-market operations to ease liquidity
Foreign brokerage Bank of America Merrill Lynch said they expect the headline inflation to rise to 3.3 per cent in May, but added that it is within the 2-6 per cent range which the government has set for the RBI.
Revising up inflation bands for the central bank will hurt the poor, former deputy governor of RBI Viral Acharya said on Wednesday, terming the current 4 per cent midpoint on price-rise as a "reasonable target".
New Delhi plans to cut public spending by up to 10 percent in the fiscal year starting in April, officials involved in the budget preparations told Reuters last week, as Finance Minister P Chidambaram struggles to bring down the fiscal deficit to 4.8 percent of gross domestic product and stave off a credit rating downgrade.
Shares were also buoyed by positive global sentiment on hopes major central banks will ease monetary policy further or continue to keep it loose for long.
Consumer food price inflation eased to 6.14%.
In cutting interest rates and giving a boost to the government's efforts to revive growth, RBI governor Raghuram Rajan displayed the pragmatism and flexibility familiar to those who work with him.
The wholesale inflation rose to a 13-month high of 1.26 per cent in April fuelled by rising prices of food articles, especially vegetables, amid expectations of RBI holding interest rates in the policy review next month. The wholesale price index (WPI) based inflation has been rising for two months in a row.
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