India’s RBI rate cut may boost IPO, bond market activity
The Reserve Bank of India (RBI) announced a 50-basis point rate cut on June 6, along with a liquidity injection of 2.5 trillion rupees (US$29.2 billion).
This move aims to lower borrowing costs and boost activity in the capital markets.
Short-term bonds rallied after the announcement, with the liquidity boost expected to reduce short-term interest rates, according to Anurag Mittal of UTI AMC.
The rate cut may stimulate IPO activity. Utkarsh Sinha of Bexley Advisors said lower interest rates could increase demand from fund managers for new equity offerings.
The upcoming IPO of HDB Financial Services, which has received regulatory approval, will serve as an early indicator.
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The combination of a large repo rate cut and CRR reduction represents an aggressive monetary stance with historical precedent but unusual magnitude.
In 2012, the RBI surprised markets with a 50 basis point repo rate cut, similar to the current action, but the additional 100 basis point CRR reduction makes this intervention significantly more powerful 1.
This dual approach differs markedly from the RBI’s more measured approach during 2019, when it made multiple smaller 25 basis point cuts that cumulatively reduced rates by 160 basis points over the year 2.
The injection of ₹2.5 trillion through the CRR reduction represents one of the largest liquidity infusions in recent years, creating potential for substantial credit expansion throughout the economy 3.
This aggressive easing cycle closely tracks what occurred post-2008 financial crisis, suggesting the RBI sees current economic conditions as requiring extraordinary intervention.
The rate cut comes as India has already established itself as a global IPO leader, potentially accelerating an existing strength in the capital markets.
India emerged as the busiest IPO market globally by deal count in 2024, indicating strong fundamental demand for new listings even before this monetary stimulus 4.
The global IPO market has shown a 20% year-on-year growth in value during Q1 2025, creating a favorable backdrop for Indian companies looking to go public 5.
Historical data from previous IPO cycles suggests monetary easing tends to improve IPO performance, with approximately 55% of Indian IPOs since 2017 delivering positive returns 6.
The immediate test will be HDB Financial Services’ upcoming IPO, which will serve as an indicator of how quickly the rate cut’s effects translate to improved IPO pricing and investor demand.
The practical impact of the RBI’s rate cut will depend on how effectively and quickly banks pass these reductions to borrowers, a process that has historically varied.
Historical data shows that between January 2015 and June 2018, the weighted average lending rate changed by 205 basis points in response to a 200 basis point repo rate cut, indicating an eventual but not immediate transmission 7.
Banks typically take time to adjust deposit rates, which constitutes a significant portion of their cost structure, creating a natural lag in the transmission of monetary policy to actual borrowing costs 7.
Recent evidence from the RBI’s previous easing cycles demonstrates that while policy transmission has improved, the full effects often take 2-3 quarters to materialize throughout the financial system 2.
For sectors like real estate and consumer durables that are particularly sensitive to interest rates, the timing of rate transmission will be critical in determining whether this policy shift can boost demand in the near term.
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