The Reserve Bank of India on Thursday lowered the key interest rates by 25 basis points and shifted its stance to "neutral" from "calibrated tightening" to boost a slowing economy after a sharp fall in the inflation rate.
The monetary policy committee (MPC) cut the repo rate by 25 basis points to 6.25 percent, as predicted by only 21 of 65 analysts polled by Reuters. Most polled respondents had expected the central bank to only change the stance, to neutral.
Four of six members of the MPC voted to cut the rates, while all six members voted for a change in the stance.
RAJNI THAKUR, ECONOMIST, RBL BANK, MUMBAI
"MPC has clearly responded to the slack in financial markets in its credit policy. As the political cycle intensifies, monetary authorities have the onus to ensure financial sector stability and the RBI seems to be focussed on it in deciding to cut the rates, and complimenting it with other announcements regarding NBFCs' (non-banking financial companies') credit assessment, raising limits for FPI (foreign portfolio investor), for CP (commercial paper) investments, etc.
"There was a space created by lower headline inflation and the RBI has used it to support financial activities."
"With lower projections of inflation and growth going forward, there are indications that MPC will look for opportunities for further cuts in the cycle."
ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, GURUGRAM
"The RBI following its own rule - both recent history and forward guidance - made a compelling case for the rate cut. Going by the guidance, there is room for further rate cut.
"Growth is back in the central bank's vocabulary, not as a risk to price stability but as a legitimate target. Fiscal concerns and inflationary consequences seem to be underplayed."
"RBI remains an independent body. Its projections are realistic for a change. It's unfortunate that this is being seen against the backdrop of Dr. Patel's resignation."
"To see this as a capitulation of the government's demands is profoundly misguided."
ANAGHA DEODHAR, ECONOMIST, ICICI SECURITIES, MUMBAI
"This is pretty dovish. The key takeaway is that inflation trajectory has been lowered. And also, inflation will remain below the mid point of 4 percent till Q3 of 2020. This is a very, very soft inflation trajectory and actually warrants a rate cut. As long as you are below 4 percent, it requires a rate cut and neutral stance... I believe this decision is justified."
"I feel when it came to changing stance they were already behind the curve. In the last policy, the inflation was so low they should have changed the stance. I think this has nothing to do with independence of the central bank. It's a fairly objective decision."
"I don't think another rate cut is off the table as of now. There is a possibility of another rate cut depending on how inflation trajectory pans out."
AURODEEP NANDI, INDIA ECONOMIST, NOMURA, MUMBAI
"The MPC's U-turn – from 'calibrated tightening' in December (which effectively ruled out a rate cut) to a decision to cut rates in February is a surprise."
"We did expect a rate cut later this year, but the front ended delivery is a surprise even relative to our expectations."
"The RBI has seen through the expansionary budget, as well as the sticky core inflation, and has found the recent softness in inflation prints to "open up space for policy action."
PUNEET PAL, DEPUTY HEAD AT DHFL PRAMERICA MUTUAL FUND, MUMBAI
"(It) won't really be a boost for elections because you have to see the transmission from actual lending rates which may take some more time. It will not happen immediately."
"It is a dovish tone because they have reduced their PPI targets and I think there will be another rate cut but difficult to say whether or not in April."
"I don't think RBI's independence is compromised because headline inflation has been coming down and in the last policy RBI had hinted that if the headline inflation continues to undershoot their projection it can open up to policy easing."
"If you look inflation data and growth outlook, it was calling for a rate cut and the only question was if it happened in Feb or April."
SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI
"The central bank's commentary on inflation and growth support a dovish outlook for the policy.
"On growth, the RBI once again highlighted downside risks to its forecast of 7.4 percent. We concur with that assessment. Trade related uncertainties due to U.S.-China trade tensions are likely to weigh on India's growth as well. The central bank also acknowledged presence of negative output gap due to tepid private investment and easing in private consumption."
"We think the impact of budget measures on growth are likely to materialise with a lag which should provide the RBI with space for rate cuts."
"There is a possibility of another rate cut by the central bank in April. The macro backdrop as such supports the RBI's stance and does not raise questions over its independence."
RUPA REGE NITSURE, CHIEF ECONOMIST, L&T FINANCIAL SERVICES, MUMBAI
"Based on the evolving dynamics of inflation, demand and growth, this is the perfect policy response in the current circumstances. Aligning NBFCs' risk weights to cost of bank borrowings will go a long way in correcting the distortions.
"By duly incorporating financial stability considerations in its monetary policy response, the RBI has done a great job in boosting the market sentiment."
First Published: IST