It was no secret that the Reserve Bank of India (RBI) would cut interest rates or repo rates. Almost all economists polled by the media had largely expected a 25 basis points cut in interest rates as inflation has seen a sharp dip in the last few months.
Repo rate cut
The Reserve Bank of India cut interest rates by 25 basis points or 0.25 per cent. This was largely in line with expectations. This would now reduce lending rates in the economy provided banks pass on the cuts. RBI Governor Raghuram Rajan has been nudging banks to cut interest rates. Deposit rates maybe slashed further if banks feel their asset liabilities permit them to do so.
Sounding a hawkish tone
The RBI sounded a lot more hawkish then was expected. It also made it clear that the interest rates were frontloaded and further easing would depend on a host of factors.
CRR remains unchanged
The Cash Reserve Ratio has remain unchanged at 4 per cent. The RBI may have decided that there is ample liquidity in the system, which is why it held back cutting the CRR. Some economists wanted a cut in the CRR, but that did not come through.
RBI may pause for the rest of the year
The RBI may pause for the rest of the year is what analysts feel. This may not be good news for industry which was hoping for more rate cuts. It will be dependent on inflation data come through.
Stock markets fall sharply
The Sensex and the Nifty fell sharply after the RBI policy was announced. Dealers say that the "frontloaded" word used by the RBI impacted sentiments. The Bank Nifty was down 1.7 per cent in trade. The Sensex slumped 355 points, while the Nifty was down 108 points in trade.