Nothing went against the expectations, as the Reserve Bank of India (RBI) has announced a repo rate cut by 25 basis points on its first bi-monthly monetary policy review for the fresh financial year on Tuesday. In an indication to go ahead with the accommodative stance, the apex bank has lowered the repo rate to more than a five year low of 6.50 percent.
RBI Chief Raghuram Rajan said in a post-meet press conference that further monetary policy decisions will be based on the outcome of the monsoons, monetary policy transmission and the trajectory of the inflation, which has justified the apex bank to initiate for rate cuts. While, the Cash Reserve Ratio (CRR) has been kept unchanged and the Statutory Liquidity Ratio (SLR) has been reduced by 25 basis points.
The move is expected to boost the liquidity of banks as now banks can pass the benefits of lower interest rates to the money borrowers. Rajan also called out banks to transmit more funds and hoped to see a notable monetary transmission over the next few months. RBI also retained the economic growth forecast over the new financial year at 7.6 percent.
Even though the rate cut went in par with the wide expectations, the stock market and BSE index reacted negatively to the rate cut. The Sensex is trading lower by over 300 points in the initial hours after the RBI announcement. Earlier the rate cut was highly in cards after the Union Budget in the last of February hooked positively to the fiscal consolidation targets. The trending inflation statistics in February, which was lower than expected, has also made it easier for RBI to achieve its goal this time.