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Thursday , 17 August 2017
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Stock markets react negatively to RBI’s rate cut

The Reserve Bank of India (RBI) today cut the repo rate by 25 basis points, bringing it down to 6 percent. The rate cut represents the significant fall in inflation in recent months. However, the RBI is not sure if the inflationary trends are sustainable in the long run. The decision to cut the repo rate has been taken during RBI’s third bi-monthly monetary policy review of the financial year. The repo rate cut announced today by RBI has come after a gap of around 10 months. The last time a repo rate cut was announced was in October 2016. At 6 percent, the repo rate is the lowest in the last six and a half years. It may be recalled that RBI was under great pressure from the government to reduce the repo rate. The Finance Ministry has hailed RBI’s decision to cut the repo rate and said that it would help achieve sustained growth.

Although the rate cut was on expected lines, the stock markets strangely reacted negatively to the rate cut. The BSE index fell 98.43 points to close at 32,476.74 whereas the Nifty fell 33.15 points to close at 10,081.50. However, financial experts said that this may be a temporary trend and the stock markets will rise in the near future. Experts are especially bullish about automotive and banking & financial companies, which are expected to gain significantly from RBI’s rate cut. The companies that are expected to gain from the rate cut include Dewan Housing Finance Corporation, Gruh Finance, Housing and Urban Development Corporation (HUDCO), LIC Housing Finance, Mangalam Cement, HDFC, JK Tyre, NCC Ltd, SBI, PNB, Mahindra & Mahindra (M&M), Ashok Leyland, etc.

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