Indian equities markets cheered an unexpected cut in the cash reserve ratio (CRR) by the Reserve Bank of India on Tuesday as a benchmark index soared to rule 179 points higher soon after the decision was announced.
After nearly two years of tight check on money supply to tame inflation, the RBI took steps to infuse more liquidity in the system by reducing the cash reserve ratio by 50 basis points in a bid to help industry out of the current downturn.
The cash reserve ratio (CRR), the amount against deposits, which commercial banks have to keep as liquid assets such as cash, has been lowered by 50 basis points to 5.5 per cent from 6 per cent.
"This step will release Rs.320 billion into the system," Reserve Bank of India (RBI) Governor D. Subbarao said in a statement, soon after presenting the third quarter review of the monetary policy for the current fiscal year.
The 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE), which opened at 16,806.72 points and was ruling lacklustre, shot up 186 points or 1.11 per cent to touch a high of 16,937.78 points from its previous close at 16,751.73 points.
The 50-scrip S&P CNX Nifty of the National Stock Exchange also rose to trade at 5,101.8 points up 1.1 per cent or 56.65 points from its previous close.
Broader markets were also ruling higher with the BSE 500 index ruling 1.03 per cent higher from its previous close. The BSE midcap index was ruling 0.7 per cent up and the BSE smallcap index gained 0.43 per cent.
The market breadth shifted from a mixed bag to the positive with 1,300 stocks advancing compared to 930 on the decline. About 98 scrips were unchanged.
Gainers were led by capital goods and banking stocks.