Indian stocks jumped the most in eight months and bonds rallied with the rupee after Reserve Bank of IndiaGovernor Raghuram Rajan unexpectedly cut interest rates to help revive growth in Asia’s third-largest economy.

The S&P BSE Sensex climbed 2.7 percent to 28,075.55, the biggest gain since May and the best performance in Asia after China. The yield on sovereign bonds due July 2024 slumped eight basis points, or 0.08 percentage point, the most since Dec. 2, to 7.69 percent. The rupee touched 61.4825 per dollar, the strongest level since Nov. 5. The iShares MSCI India ETF rallied 3.6 percent to $31.66 in U.S. trading.

Rajan cut the main repurchase rate to 7.75 percent from 8 percent. The first reduction since May 2013 comes after data this week showed consumer pricesheld below the RBI’s target for a third month amid a rout in oil prices. Arvind Virmani, a member of the central bank’s monetary policy advisory panel, said Jan. 13 that “it is time to cut rates.”

India, which imports about 80 percent of its oil, has seen its inflation outlook improve amid a 48 percent slump in Brent prices last year. Rajan has focused on curbinginflation since taking office in September 2013, and today’s move signals confidence that the RBI will achieve its target of keeping retail-price gains below 6 percent by January 2016.

“The cut signals that the battle on inflation is broadly won,” said Suyash Choudhary, Mumbai-based head of fixed income at IDFC Asset Management Co. “Positivity around Indian assets should continue, going forward.”

State Bank of India rose the most since November, sending a gauge of lenders to an all-time high. Mortgage lender Housing Development Finance Corp. surged 7.2 percent to a record. The stock was the best performer on the Sensex.

David Fuller's view

India was a strong performer last year, and the combination of lower inflation and interest rates bodes well for 2015 and beyond.  However, an important uncertainty concerns the monsoon season which was both delayed and weak last year, raising inflation during 2014.

India’s National (Nifty 50) Index continues to consolidate above the 8000 region and a close beneath this level would be required to delay scope for sideways to higher ranging.

The JPMorgan Indian Investment Trust (JII LN) powered higher today, more than doubling from its August 2013 low, when Narendra Modi announced that he was entering the race to be prime minister.  Governance Is Everything, so I will not consider taking profits just because this move is currently overstretched relative to its MA.  However, I may increase my position when somewhat larger corrections occur.