The Sensex surged over 200 points to trade above the 32,000 mark for the first time
Highlights
- Banking stocks surged on hopes of RBI rate cut
- Chief economic advisor made strong case for rate cut
- Consumer price inflation fell to record low of 1.54% in June
The Sensex ended above 32,000 for the first time after consumer price inflation fell to a record low of 1.54 per cent in June and Chief Economic Advisor Arvind Subramanian made a strong case once more for a Reserve Bank rate cut. Nudging the RBI, Dr Subramanian said policymakers "will reflect" on this historically low inflation data "very very carefully", adding in statement on Twitter, "This low, heartening number is consistent with our analysis for some time now - and which will be fully elaborated in the forthcoming Survey - of a paradigm shift in the inflationary process to low levels of inflation - a shift that I think has been missed by all reflected in the large, one-sided, and systematic inflation forecast errors that have been made."
Here is a 10-point cheat-sheet:
With headline inflation remaining below the RBI's mid-term target of 4 per cent for the past eight months, industry participants and the government have sought a cut in interest rates to support economic expansion.
Banking stocks surged today on hopes of RBI rate cut next month, taking Sensex past 32,000 mark for the first time and the Nifty also closed at a record high with a few points shy of 9,900. The market momentum remains strong, say analysts. Sumeet Bagadia, associate director of Choice Broking, expects the Nifty to hit the historical 10,000 mark in a couple of sessions. The Nifty could face some resistance at 9,900 and has support at the 9,800-9,750 zone, he added.
Sanjiv Bhasin of India Infoline has a cautious stance on markets. Positives like low inflation and GST are factored in at current levels and the Nifty beyond 10,000 remains an expensive level for the markets, he said.
The lower-than-expected inflation number further bolsters the case for an RBI rate cut next month to boost Asia's third-largest economy, which grew 6.1 per cent in the January-March quarter - its weakest pace in more than two years. "The RBI should cut rates by at least 50 basis points if they want to help genuine borrowers," Rupa Rege Nitsure, group chief economist at L&T Finance Holdings, told news agency Bloomberg.
Dr Subramanian had earlier disagreed with the RBI's status quo on interest rate in its June review. The chief economic advisor had said that though "we respect" the views and decisions of RBI, "seldom have economic conditions and the outlook warranted substantial monetary policy easing."
Economists widely expect the RBI to lower rates by 25 basis points at its forthcoming policy review meet next month. "Given the current inflation trajectory we reiterate our call of a 25 basis points rate cut in August policy," said Shubhada Rao, chief economist at Yes Bank.
Though the RBI maintained status quo on interest rate in its June review, the central bank softened its hawkish stance on inflation. The RBI also lowered its headline inflation forecasts to a range of 2.0-3.5 per cent for the first half of fiscal year 2017/18 and 3.5-4.5 per cent in the second half, down from 4.5 per cent and 5.0 per cent, respectively.
Separately, economic data released on Wednesday showed industrial output grew 1.7 per cent in May from a year earlier, slowing down from a revised 2.8 per cent annual rise in April. The chief economic advisor also referred to the industrial output numbers in his tweet. "Clearly, this low number and what it implies about underlying price measures - as well as the latest IIP data just released -is something that, I am sure, all policy makers will reflect upon very very carefully," Dr Subramanian said.
The RBI had started a rate cutting cycle in 2015, lowering the policy rate by a total of 175 basis points, but has kept rates unchanged since October 2016.
The Sensex ended 233 points higher at 32,037 and the Nifty advanced 76 points to settle at record high of 9,892.
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