Bank Nifty hits a new 2025 high as RBI surprises with a rate cut of 50 bps

In a bold move that capped a hat-trick of rate cuts, the Reserve Bank of India (RBI) slashed the repo rate by 50 basis points (bps)—its steepest cut under the new governor—bringing it down to 5.5%. This marks a cumulative 100 bps easing in 2025 alone, following two earlier 25 bps cuts in February and April. The RBI also cut the cash reserve ratio (CRR) by 100 bps, signalling a pro-growth, liquidity-friendly stance.

While the broader market reaction to RBI’s monetary policy move was muted, banking stocks cheered, with the Nifty Bank index closing at a record high for the year, surging by 1.47% to 56,578.40. Leading the charge were IDFC First Bank (+7.04%), Axis Bank (+3.15%), HDFC Bank (+1.46%), AU Small Finance Bank (+3.94%) and Kotak Mahindra Bank (+1.57%), all buoyed by the promise of stronger credit growth and increased transmission room. 

Contradicting its peers, Canara Bank slipped by 0.50%. Meanwhile, IndusInd Bank, which has been in the news due to accounting irregularities, saw an uptick of 2.59%. 

In contrast, the benchmark indices showed only modest gains. The Nifty rose 252.15 points to end at 25,003.05, while the Sensex climbed 0.92%, reflecting continued caution among investors amid heightened global geopolitical tensions, particularly renewed conflict in the Russia-Ukraine region.

“The market is watching for cues from the U.S. side before taking a firm directional call. Statements from key officials this weekend will be crucial,” said Ambareesh Baliga, independent market expert.

Economically, the rate cut is expected to ease loan rates, boost affordable housing demand, and spur investment. However, analysts caution that net interest margins (NIMs) may face pressure if lending rates fall faster than deposit rates. “Even if margins compress temporarily, banks have long-term deposits locked in. That, along with an uptick in credit demand, should cushion the impact,” Baliga added.

From a debt market perspective, the move caught many off guard. Dhawal Dalal, president & CIO-fixed income, Edelweiss Mutual Fund, noted that the monetary policy announcement by the RBI surprised many, especially the bond market.

“The MPC surprised the bond market by front-loading rate cuts and liquidity measures. The shift to a ‘neutral’ policy stance may temper enthusiasm briefly, but the overarching signal is clear: the RBI wants to push the economy to a higher growth trajectory,” Dalal said.