Sensex jumps after CRR cut, banking stocks soar
S Panse, ED of Vijaya Bank said that the cost of funds will get reduced and the liquidity constrains will ease slightly due to a cut in CRR.
Markets reacted positively to Reserve Bank's announcement of cutting the cash reserve ratio (CRR), which is the amount of funds that the banks have to keep with the central bank.
The benchmark indices jumped nearly 1 per cent after the announcement. At 1120 hours, the Sensex traded over 160 points higher, taking the 16,900 mark and the broader Nifty index jumped 50 points to near the 5,100 levels.
The central bank kept the repo rates, which is the rate at which the RBI lends funds to banks, unchanged but the CRR was cut by 0.5 per cent to 5.5 per cent. The cut in CRR will inject Rs 320 billion into the economy, Governor D Subbarao said.
Banking stocks surged on account of CRR cut announcement. Public sector banks like Bank of India (3.7%), Canara Bank (3.3%), Bank of Baroda (2.6%) and PNB (2.3%) were among the top gainers on the Bombay Stock Exchange (BSE) Banking index. SBI, India's largest PSU Bank, jumped 1.7%. ICICI Bank (2.2%) was the biggest gainer among private banks.
Other rate sensitive counters - auto and realty- recovered from the day's low after RBI's announcement.