While the Reserve Bank of India's decision to keep policy rates on hold came as a surprise, the expectation of a 50 basis point cut in the repo rate was perhaps too optimistic, said Ajit Ranade, chief economist of the Aditya Birla Group.
At a time when the rupee is unstable and the gap between the U.S. Treasury yield and the Indian bond yield is narrowing, the RBI was right to err on the side of caution and not cut rates aggressively, he added.
Even then, the central bank provided some relief to banks in reversing the incremental cash reserve ratio of 100 percent imposed on deposits between September 16 and November 11.
According to him, the 0.5 percent downward revision in GDP growth forecast for financial year 2016-17 springs from two factors – the combined impact of the demonetisation and the slowdown already seen in the second quarter.
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