SBI rate cut takes sensex to new peak

Mumbai: The sensex and the Nifty resumed their record-breaking rally on Monday with State Bank of India, the largest lender in India, surging 4.5% after the bank leader drastically cut savings bank rate by 50 basis points (100 basis points = 1 percentage point) to 3.50%. Several other banks, mainly government-owned, too, rallied as all lenders are expected to follow SBI in cutting rates. The sensex closed 205 points (0.6%) higher at 32,515, while the Nifty closed 63 points (0.6%) up at 10,077, both new closing highs.

The day’s rally was also boosted by expectations of a rate cut by the Reserve Bank of India in its bimonthly policy meeting on August 2. Interestingly, the day’s strong gains came despite a Rs 1,200-crore net selling by foreign funds, although domestic funds more than compensated the selling by a net purchase of Rs 1,768 crore, BSE data showed.

During the day, banking leader SBI said it was reducing interest rate on savings bank deposits of Rs 1 crore or less to 3.5% from 4%, while it was leaving rates for deposits above Rs 1 crore unchanged at 4%. This led to a strong buying in SBI and also other PSU banking stocks, dealers said. Among the PSBs, Bank of Baroda closed 2.5% higher while Bank of India closed 2.4% up.

The day’s session also witnessed stocks from other rate sensitive sectors rallying on expectations of a rate cut by the central bank on August 2.

Despite a slowing economy and huge clamour for cut in key policy rates to boost the economy, the RBI has not reduced repo rate (the interest rate that banks pay when they borrow from the RBI) since October 2016, which is currently at 6.25%. Although the general consensus is for a 25-basis points cut in key repo rate, a section of the business community is also pushing for a 50-basis points cut, market players said.

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