Indian equity markets witnessed a significant upswing on Friday, propelled by a key monetary policy decision from the country's central bank. The benchmark indices, Sensex and Nifty 50, rallied strongly after the Reserve Bank of India (RBI) announced a reduction in the repo rate.
Market Responds Positively to Policy Move
The Sensex jumped 338.39 points, or 0.40%, to close at 85,603.71. Similarly, the Nifty 50 index gained 109.05 points, or 0.42%, settling at 26,142.80. The banking sector index, Bank Nifty, also traded higher, registering a gain of 0.55%.
The rally was broad-based, with rate-sensitive sectors leading the charge. Key sectoral indices including Nifty Realty, Nifty Auto, Nifty Financial Services, Nifty PSU Banks, and Nifty IT were all trading positively, reflecting investor optimism following the rate cut announcement.
Details of the RBI Monetary Policy Decision
The surge in the markets was triggered by the outcome of the RBI's fifth bi-monthly monetary policy committee (MPC) meeting for the financial year 2025-26 (FY26). The committee, headed by Governor Sanjay Malhotra, made a unanimous decision.
The MPC voted to reduce the repo rate by 25 basis points (bps) to 5.25%. It decided to maintain a 'neutral' policy stance, providing flexibility for future actions. Alongside the rate cut, the central bank also revised its economic projections upwards.
The RBI raised its FY26 GDP growth estimate to 7.3% from the previous forecast of 6.8%. Concurrently, it lowered the Consumer Price Index (CPI) inflation forecast for FY26 to 2% from the earlier projection of 2.6%.
Context and Broader Trend
This rate cut marks a continuation of the RBI's accommodative cycle that began earlier in the year. In 2025, the central bank has now reduced the repo rate by a cumulative 125 basis points across four meetings, starting in February.
The previous policy review in October had resulted in a status quo, with the MPC keeping the repo rate unchanged at 5.50% and retaining the 'Neutral' stance. Today's decision to resume rate cuts, coupled with optimistic growth and benign inflation forecasts, provided a strong catalyst for market sentiment.
The positive reaction underscores the market's sensitivity to borrowing costs, with lower rates typically boosting corporate profitability and economic activity, which in turn fuels investor confidence in equities.
