Dalal Street turned jubilant on Thursday as expectations for an interest rate cut received a big boost from a dip in inflation. The BSE Sensex jumped 482.32 points, or 5.51 per cent, to 9,229.75 following a surge in realty, metal, banking shares and index heavyweight Reliance Industries.

According to market circles, likely government measures to pump-prime the economy, hopes of a further cut in interest rates, firm European stocks and rebound in US index futures boosted the domestic bourses.

Bank shares were in demand as falling inflation heightened expectations for an interest rate cute by the RBI. The RBI is expected to cut repo and reverse repo rates in an attempt to shield the domestic economy from the global economic slowdown. “The market picked up on reports that the RBI is considering a cut in Repo and Reverse Repo rates this weekend. Further, banks in Europe have decided to cut interest rate which gave boost to the European markets. This was reflected in on our bourses too,” said an analyst with Geojit Securities.

Dealers said stocks extended their gains and continued to add momentum on lower inflation and hopes of the stimulus package. The inflation rate decreased to 8.40 per cent for the week ended November 22, 2008 compared with 8.84 per cent last week. The broader S&P CNX Nifty of National Stock Exchange gained 131.55 points, or 4.95 per cent, and ended the day at 2,788 points.

Some dealers said that the market was expecting around Rs 15,000 crore from the government to support the infrastructure sector along with measures for the housing, automobile and export sectors. An analyst said, “We only witnessed relief rally and global cues are still an anxiety for the Indian markets. I think this is a time when India needs some smart measure from the government to lift the sentiments of the investors.”

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