RBI finally says yes, but forward guidance remains cautious
Further, RBI seems a bit concerned that the growth is significantly below trend. While it has brought down its FY2013 growth estimates to 5.5% from 5.8% earlier, RBI admits the growth compression is a result of contraction from the demand side with domestic investment activity as also consumption demand having slowed. Overall, the softening status on growth and also with inflation under control, the RBI could afford to bring down the Repo rate by 25 bps.
Along with this, RBI has also brought down CRR by 25 bps, likely to release around R18,000 crore of liquidity into the system. This, we think is a smart move to ensure the repo cut of 25 bps percolates down to the real sector of the economy. To put this in perspective, a mere 25 bps cut in Repo rate might not have been effective in bringing down the commercial lending rates as deposit growth of the banking sector had been relatively muted. This had
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