[R]10:00AM New York, 7:30 PM Mumbai – In a surprise move, the RBI lowered its short term lending rate and also trimmed the growth outlook for fiscal year ending in March 2009 and 2010. Rupee edged lower against dollar and euro on weaker economic growth outlook and stocks declined.[/R]

Indian stocks fell in volatile trading after the Reserve Bank of India cut the interest rate to 3.25% and rupee edged lower. Rupee dropped to 50.44 against one dollar on weak outlook for the Indian economy.

In Mumbai, the BSE 30-share Sensex index fell 0.7% or 81.39 to 10,898.11, and the CNX Nifty plunged 0.4% or 11.80 to 3,365.30.

Of the stocks traded on the BSE, 1,232 gained, 1,316 declined, and 64 were unchanged.

Market Sentiment

Daily turnover on the BSE increased to 5,089 crore rupees from 4,749.97 crore rupees yesterday.

Reserve Bank of India Cuts Short-Term Rates

Reserve Bank of India cuts its short-term lending or repo and reverse repo by 25 basis points. The repo rate was lowered to 4.75% and reverse repo rate was cut to 3.25% but the bank maintained its cash reserve ratio.

In its annual policy review, the central bank observes that banks have been slow in reducing the lending rates on high costs of deposits. The governor Duvvuri Subbaro said that the RBI policy is designed to create consumer demand and sustain economic growth.

“Judging from the experience of 2004-07, there is room for downward adjustment of deposit rates.” The policy statement also noted that, “There is a scope for the overall interest rate structure to move down within the policy rate easing already effected by the RBI.”

Separately, the apex bank also reduced its economic growth estimate to between 6.5% and 6.7% for the year ended March 2009 from 7% forecasted earlier.

The central bank also lowered its growth for the current fiscal year ending in March 2010 to 6% on the hopes of better monsoon season and government stimulus plan.

Banks to Open ATM’s Without Approval

Reserve Bank of India reported in its annual monetary policy that it will allow scheduled commercial banks to open ATMs without their prior approval.

A group will be constituted to review the existing framework of the branch authorization policy for providing greater flexibility and enhanced penetration.

Gainers & Losers

Reliance Industries declined 0.5% to 1,706 rupees.

Energy stocks fell as crude oil prices declined to $45.19 per barrel. Oil & Natural Gas Corporation dipped 0.1% and Cairn India declined 1.5%.

Auto stocks fell on profit taking. Mahindra & Mahindra declined 2.5%, Tata Motors shed 5.2%, Maruti Suzuki India plummeted 5.4% and Hero Honda Motors fell 2.1%.

Financial stocks declined. ICICI Bank fell 6.5% and HDFC tumbled 0.4%. State Bank of India plunged 3.1%. HDFC Bank gained 1.8%.