RBI surprises, cuts CRR, repo rates by 25 bps today

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The Reserve Bank of India cut its key repo rate to 7.75 per cent. (Reuters) The Reserve Bank of India cut its key repo rate to 7.75 per cent. (Reuters)
SummaryRBI made the first cut in 9 mths to support an economy headed for slowest growth in decade.

Review intends to contain inflation and anchor inflation

expectations.

* RBI says inflation has come off its peak.

* Revises downward March-end inflation projection to 6.8 pc

from 7.5 pc.

* Q3 CAD likely to widen beyond 5.4 pc of GDP.

* Bank rate stands adjusted to 8.75 per cent with immediate

effect.

* Next mid-quarter review of monetary policy on March 19.

COMMENTARY

(Reuters): RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE

"It is a timely reduction in the repo rate by the central bank though markets are swiftly likely to look beyond the priced-in move and focus on the policy guidance. RBI has not abandoned its cautious stance, stressing on the 'calibrated and limited' nature of rate support hereon. Scale of rate cuts is closely tied to the government's sustained efforts to correct the twin imbalances and moderating inflation trajectory. Even as few quarters price in substantial rate cuts going forward, we see room for only 75 bps more cuts by end-year."

SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI

"As expected a 25 bps repo cut is well justified amidst sticky retail inflation and subdued investment activities. Further the 25 bps CRR cut though a bit of a surprise, signals limited chances of further OMOs in the rest of the fiscal. The tone of the policy seems neutral with due consideration to support growth at a higher inflation trajectory. We expect the bonds to trade rangebound with limited chances of further OMOs up till budget.

"We expect another 25 bps rate cut at the March policy meet and the qualitative fiscal management measures during the upcoming budget session would be the guiding factor in deciding the quantum and timing of future rate cuts in the next fiscal."

JONATHAN CAVENAGH, STRATEGIST, WESTPAC, SINGAPORE

"Combined with the reasonable drop in the inflation forecast, the market is probably encouraged to belief more cuts will be forthcoming. The fiscal side will be critical though and if the RBI feels the government's reform push is slipping, rate cuts will be put on the back burner.

"Indian equities have recovered earlier losses but are only up modestly. A more decent reaction in USD/INR but this move is probably being helped by

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