RBI monetary policy review: Governor Raghuram Rajan, in the first bi-monthly meet of the new fiscal, cut the repo rate by 25 bps aside from boosting liquidity through a host of other measures. Exactly what that would mean for interested quarters was then interpreted by experts. Check out their comments:

“The policy sounds dovish. Greater focus is on liquidity management, more importantly the commenatry is clearly guiding on further rate cuts, with four riders, namely: good monsoon, low headline CPI, softening core CPI and improving rate transmission. On these four parameters further rate cuts would play out,” said Shubhada Rao, Chief Economist, Yes Bank, Mumbai.

“In all, today’s decision was more focused on addressing liquidity shortage and easing the transmission mechanism. There is a significant shift in their emphasis on the NDTL framework, narrowing the corridor around the operational repo rate and CRR changes. This is to ensure that the easy policy stance percolates to the real economy and materially lowers financing costs. These changes are likely to provide positive impetus to the financial markets in the near-term,” said Radhika Rao, Economist, DBS Bank.

“The cut is a good one if it is passed on by the banks and bank rates come down. The governor has been very conservative. The government has been much more proactive by easing FDI rules and taking other measures. The economy is on a recovery path despite the RBI. This round goes to the finance minister,” said Rajeev Talwar, CEO DLF Ltd.

“Whether we will have future rate cuts or not depends on what kind of stance the RBI Governor is taking. We expect there could be further rate cuts ahead. One of the important data points that the governor had to work with is that there is a normal monsoon forecast … which is the first preliminary forecast. Therefore it tells me that there could be another rate cut by 25 basis points sometime during May-July,” said Mahantesh Sabarad, SBI Cap Securities, Mumbai.

“Policy remains accommodative. Over the next two months, if rainfall conditions remain better and with an eye out on global economic conditions, they still have room for another 25 bps rate cut. “On the rate corridor move, I think they are moving towards Phase II of the liquidity managment framework, keeping overnight rates closer to policy rates. They’re managing short-term rates well while keeping durable liquidity supply stable,” said Saugata Bhattacharya, Senior Economist, Axis Bank, Mumbai.

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HIGHLIGHTS:

RBI cuts repo rate by 0.25 pct to 6.50 pct

RBI hikes reverse repo by 0.25% to 6%

Cash reserve ratio or CRR stays unchanged at 4 pct

To lower banks’ borrowing cost, MSF rate cut by 0.75 pct

2016-17 economic growth forecast pegged at 7.6 pct

RBI expects inflation at around 5 pct

RBI expects 7th Pay Commission award to put upward pressure of up to 1.5 pct on inflation

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