RBI cuts repo rate 25 BPS, Sensex, Nifty achieve record highs

The Reserve Bank of India (RBI) cut the Repo Rate by 25 basis points to 7.5 percent, signaling that it was convinced by the fiscal consolidation measures announced in the budget proposals for 2015-16.

The RBI has kept the cash reserve ratio (CRR) unchanged at four percent.

"Disinflation is evolving along the path set out by the Reserve Bank in January 2014 and, in fact, at a faster pace than earlier envisaged," the RBI said in its statement for the reasons behind the rate cut.

This is the second out of turn 25 basis point-cut after the one in January.

The RBI also praised the fiscal consolidation measures announced in the budget, despite the government extending its three percent fiscal deficit target by a year.

The RBI statement said, "The government has emphasized its desire to clean up legacy issues which gave a misleading picture of the true extent of fiscal rectitude, and has also moderated the optimism in its projections. To this extent, the true quantum of fiscal consolidation may be higher than in the headline numbers."

It further went on to say, "Also, the government is transferring a significantly larger amount to the states, without entirely devolving responsibility for funding central programmes. To the extent that state budget deficits narrow, the general fiscal deficit will be lower."

The RBI statement further stated, "Furthermore, supported by lower international energy prices, there is a welcome intent to shift from spending on subsidies to spending on infrastructure, and to better target and further reduce subsidies through direct transfers."

The RBI move to cut the Repo Rate by 25 BPS had its immediate impact with the Bombay Stock Exchange's Sensex opening on a record high 30000 points and the National Index or Nifty opening at 9100 points in early morning trade.

The Sensex is up 407.43 points or 1.4 percent at 30001.16, and the Nifty is up 112.90 points or 1 percent at 9109.15.

About 533 shares have advanced, 94 shares declined, and 93 shares are unchanged.

The Indian rupee opened higher by 26 paise at 61.66 per dollar.

The RBI has also extends all-in-cost ceiling for ECBs till March end.