After China rate cut, all eyes on RBI now

Mumbai: Expectations of further cut in interest rates in India have gathered momentum after China effected a steep cut in interest rates to boost its sagging economy on Wednesday. Rate-cut hopes propelled the market sharply higher in late trade. Racing past the 9,000 mark, the BSE Sensex jumped 331 points or 3.81 per cent to 9,026.72.

Speculation about another round of rate cut started after finance minister P Chidambaram on Monday said monetary policy was biased towards stimulating growth and the RBI was likely to lower rates further as Inflation cooled. “Lower interest rates boost stocks as lower borrowing costs will lead to higher corporate profits,” said a market source.

China’s central bank on Wednesday cut banks’ benchmark lending and deposit rates by 1.08 per cent for the fourth time since mid-September 2008 — and the biggest since October 1997.

Rate cut hopes also aided rally in bank shares. ICICI Bank, India’s second-largest lender, rose 9.6 per cent, while HDFC Bank firmed up 8.6 per cent and SBI 3 per cent. The RBI has cut rates over the past two months to shield the domestic economy from global economic recession.

Industry chamber Ficci said the monetary policy should be rolled back to 2004 levels to ease the credit flow to the system. It said inflation had come down to due to fall in commodity prices and the Government should adopt a 'big bang' approach instead of a gradual and calibrated one.

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