The Indian stock market benchmark indices, Sensex and Nifty 50, rallied on Friday after the Reserve Bank of India (RBI) cut the repo rate by 25 basis points in its fifth bi-monthly monetary policy for FY26.
The jumped 338.39 points, or 0.40%, to 85,603.71, while the was up 109.05 points, or 0.42%, at 26,142.80. The Bank Nifty index traded 0.55% higher.
Rate-sensitive sectors led the gains, with Nifty Realty, Nifty Auto, Nifty Financial Services, Nifty PSU Banks and the Nifty IT indices trading in the green.
On Nifty 50, Shriram Finance, , , Bajaj Finserv and were the top gainers, while , Interglobe Aviation, Sun Pharmaceutical Industries, and were the top index losers.
RBI Policy Outcome
The rally in the Indian stock market today came after the RBI’s Monetary Policy Committee (MPC), headed by Governor Sanjay Malhotra, unanimously voted to reduce repo rate by 25 bps to 5.25%, and decided to continue with a ‘neutral’ stance.
The MPC also raised FY26 GDP growth estimates to 7.3% from 6.8% earlier. It reduced to 2% from 2.6% earlier.
This year, the RBI lowered the repo rate by a cumulative 125 bps in four meetings, beginning in February. In its October policy, the MPC kept the repo rate unchanged at 5.50% and maintained the policy stance as ‘Neutral’.
RBI Governor characterized the economic landscape as an uncommon “Goldilocks” phase, marked by impressive 8% and subdued inflation at 2.2% during the year’s first half. This move is bolstered by solid domestic factors, including sustained rural spending, gradual urban demand rebound, and vigorous investment, fueled by rising non-food bank lending and elevated capacity usage.
“The cut is designed to sustain this favorable momentum by easing borrowing costs in tandem with easing inflation pressures. Sectors sensitive to — like banking, non-banking financial companies (NBFCs), automobiles, and real estate — are poised for positive gains,” said Aamar Deo Singh, Sr. VP Research, Angel One Ltd.
Rupee Outlook
To inject liquidity into the banking system, the RBI decided to of Government of India securities for an aggregate amount of ₹1,00,000 crore in two tranches of ₹50,000 crore each to be held on December 11, 2025, and December 18, 2025.
The central bank will also conduct USD/INR Buy/Sell Swap auction of $5 billion for a tenor of three years to be held on December 16, 2025.
The RBI’s liquidity injection generally creates a mild weakening bias for the rupee, as it increases systemic money supply and softens short-term interest rates. This, in turn, reduces the carry advantage of INR-denominated assets.”
“However, the actual impact is not mechanical and largely depends on the broader macro environment. The rupee is also coming under pressure because the RBI Governor did not provide any direct comments on the USDINR, which the market is interpreting as a signal that the central bank may not actively intervene at current levels,” said Rahul Kalantri, VP Commodities, Mehta Equities.
He expects the rupee to remain volatile after RBI monetary policy, with USD/INR likely moving within the 89.40 – 90.95 range.
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