RBI’s Triple Surprise Is A Liquidity Lifeline, Say Experts
Here’s what analysts and economists had to say about the RBI’s latest policy moves.
The Reserve Bank of India cut the repo rate by 50 basis points to 5.5% and reduced the Cash Reserve Ratio by 100 basis points to 3% in a policy boost on Friday. It also shifted its stance from 'accommodative' to 'neutral'.
RBI Governor Sanjay Malhotra said the CRR cut, which will come into effect in four tranches, will infuse Rs 2.5 lakh crore of liquidity by year-end, easing funding costs and spurring credit growth.
Here’s what analysts and economists had to say about the RBI’s latest policy moves:
Tanvee Gupta Jain, UBS Securities
I didn’t realise that the RBI will go ahead towards CRR, which means they were uncertain whether that liquidity can sustain or not.
She said the 50 bps cut was a surprise but noted that a section of the market had expected it. She added the RBI now has a 25-50 basis point buffer if growth weakens further.
Katrina Ell, Moody’s Analytics
I think that 50 basis points to rush a bit quicker. To get there was the appropriate move at this point, even though it has been a bit of a surprise to markets.
The move aligns with global vulnerabilities and the soft dollar, which has given central banks like the RBI room to cut rates more aggressively, she said. However, she does not expect further rate cuts in the near term.
Jaideep Iyer, RBL Bank
This is a message that we need more credit growth, and we create coming down the room.
Jaideep said the neutral stance was a mild disappointment, but the CRR cut signals enough durable liquidity to support banks in lowering lending rates.
Jayesh Mehta, DSP Finance
If you look at next four months, that trajectory was perfectly fine, so why not do it now rather than doing 25 now and then another 25 two months later? So I think that was a good surprise.
The RBI’s decisive frontloading of the rate cut and CRR cut was timely, ensuring that banks have enough liquidity heading into the second half of the year, he said.
Pranav Gundlapalle, Bernstein
I think both the actions, the CRR cut as well as the larger-than-expected rate cut, is a way of saying that we need today and we don’t want to wait for six months and 12 months.
He said the RBI’s move signals urgency to revive credit growth, which has been slowing down to 10%, and he hopes lenders will respond with more aggressive lending.
Aditi Nayar, Chief Economist at ICRA
This was a policy packed with surprises. I don’t remember the last time we got so many surprises coming out of a single policy meeting.
She said the frontloaded rate cut and stance change were unexpected, and the RBI’s growth and inflation outlooks will be key to watch before the next policy meeting.
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The RBI’s steps are seen as a shot in the arm for credit growth and liquidity, with experts largely in agreement that the moves will immediately ease funding costs for banks and help kickstart loan growth. Still, they caution that the outlook for further rate cuts hinges on how inflation behaves in the coming quarters and whether global growth stabilises or worsens.
All eyes will now be on how these liquidity-boosting measures translate into actual lending and growth on the ground, say analysts.
