Bankers, experts welcome repo rate cut

After the surprise move by RBI today morning , bankers and experts cheer the 25 bps (basis points) cut in key policy rates.

"We welcome the repo rate cut by RBI. With the Government embarking on a path of qualitative fiscal consolidation and the formal adoption of inflation targeting, inflation trajectory is expected to stay benign and will aid banks in their decision-making. Our bank will take an appropriate call of a cut in base rate by looking at all evolving circumstances," said Arundhati Bhattacharya , Chairman and Managing Director, State Bank of India, country's largest bank.

This is the second out-of-turn policy rate cut in a row after the January reduction of 25 bps.

Chanda Kochhar, MD & CEO, ICICI Bank, said: “The repo rate cut is a welcome step that demonstrates RBI's comfort with the inflation outlook and its responsiveness to emerging indicators. It also reflects the number of institutional reforms and policy measures outlined in the Union Budget, which lay the foundation for sustainable growth. The rate action today should help move the economy forward on a positive growth path.”

Anis Chakravarty , Senior Director, Deloitte India, said, “In line with our expectations, the RBI has cut rates by 25 bps. Given the inflation trajectory over the past few months, we were expecting a cut before the end of the current fiscal. The latest cut by the RBI goes well with its stance and reiterates its response to the Budget where emphasis is on quality of the deficit rather than just the headline number. Further, lower than expected inflation for January and the benign outlook on inflation has favoured easing of policy. Overall, a welcome move by the RBI which will bode well for business.”

Jyotsna Suri, President, FICCI said: “The 25 basis points cut in repo rate signifies that inflationary impulses are weakening in the economy at a faster pace. More importantly it highlights that the quality of the fiscal consolidation path chosen by the government is credible."

She added, “Given the cut in the policy rate, we now hope to see transmission of this move in the form of lowering of lending rates by the banks for investment and consumer loans....

As measures announced in the Union budget take effect and demand situation starts improving, we could see an improvement in capacity utilisation levels leading to fresh investments being planned by industry. Lower lending rates by banks would provide an impetus to this trend and contribute to overall recovery in the economy.”

Rupee

The Indian rupee also got a boost in its opening trade as it opened higher by 26 paise at 61.66 against the dollar.

Himanshu Arora of Religare said, "The USD-INR pair is expected to strengthen today amid persistent upside in dollar against a basket of currencies and will continue to react to India's January fiscal deficit surpassing the full year target. However, upside to the dollar may remain capped as German Parliament approves Greek bailout extension. The USD-INR pair is expected to trade in the range of 61.76-62.18/dollar."

The dollar was trading below an 11-year high against major currencies, as investors await US economic data and a European Central Bank meeting later this week for fresh direction clues.

In a statement, RBI said, "The uncertainties surrounding any inflation projection are, however, not insignificant. Oil prices have firmed up in recent weeks, and significant further strengthening, perhaps as a result of unanticipated geo-political events, will alter the inflation outlook.''

"Other international commodity prices are expected to remain benign, given still-sluggish global demand conditions," RBI said in a statement on Wednesday morning.

Many analysts had expected this cut by RBI in this week itself further projecting a 125-150 bps cut in policy rates by the end of 2015.

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