The RBI reduced its policy interest rate by a widely expected 25 basis points on Tuesday and unexpectedly also reduced the cash reserve ratio (CRR), the share of deposits banks must keep with the central bank by 25 bps to 4 percent, which will infuse an additional Rs18000 crore into the banking system.
Below are the reactions to the central bank's policy review.
RBI policy well balanced: Rangarajan
C Rangarajan, chairman of the prime minister's economic advisory council welcomed the rate cut and termed the policy action as a balanced act. He also cautioned that future rate cuts depend on moderation in inflation.
"Going ahead more rate action will be dependent on how inflation will move henceforth," he said, adding that he expects the inflation to ball by one percentage point by next fiscal.
RBI's rate cut will help investment: Ahluwalia
The Reserve Bank of India's decision to cut rates will help revive investment in the economy, Montek Singh Ahluwalia, deputy Chairman of the Planning Commission said, adding that the economy was beginning to bottom out after a long slowdown.
Analysts widely feel that the rate cut will benefit the banking sector and this may in turn translate into a lowering of the EMI burden.
A Prasanna, ICICI Securities Primary Dealership termed the policy as finely balanced.
"In terms of guidance there maybe another 25 basis points cut in the repo rate in March, but the policy is finely balanced. There are upside risks to inflation and it is not a given that a rate cut will happen in March. It may happen in May policy. But from hereon we do not expect any more CRR cuts over the next six months, the central bank would rely on open market operations," he said.
JC Sharma, MD at Sobha Developers thinks the policy is the much needed trigger for markets.
"This is a good trigger. Because the real estate sector is rate sensitive the market believes that any rate cut will help push demand. From a customer's point of view this will improve liquidity and reduce the interest burden, said JC Sharma, MD at Sobha Developers.
Sujan Hajra, Anand Rathi Securities, said the CRR cut is a positive for banks but cautioned that it may be the last CRR cut
"The Reserve Bank of India is definitely less hawkish in its statement, and we think it will remain in the easing mode in 2013. We think they will cut the repo rate by another 50 basis points in the next five months.
"The cut in the cash reserve ratio is very positive for banks, but we think it will be the last CRR cut. However, the RBI will continue to buy bonds through its open market operation to ease tightness in liquidity."
Darius Kowalczyk, senior analyst at Credit Agricole said lowering of CRR provides more support to economy than markets anticipated.
"The statement points to further, albeit modest, room for easing, as FY13 GDP growth forecast is lowered by 0.3 percentage point to 5.5 percent and March WPI forecast is cut by 0.7 percentage point to 6.8 percent. Overall, this should boost the INR, push down G-Sec yields and INR OIS at the short end, and lead to a steepening move on the curves," he said.
Rupa Rege, chief economist at Bank of Baroda said the policy is supportive for growth.
"This is substantial easing of 50 basis points, the repo and the CRR together. There is definitely scope for lending rates to come down. However, further growth outlook now depends on the structural reform measures that are likely to be introduced in the union budget."
With inputs from Reuters
Updated Date: Dec 20, 2014 15:31 PM