RBI surprises, cuts CRR, repo rates by 25 bps today

D Subbarao

"We expect another 25 bps rate cut at the March policy meet and the qualitative fiscal management measures during the upcoming budget session would be the guiding factor in deciding the quantum and timing of future rate cuts in the next fiscal."


"Combined with the reasonable drop in the inflation forecast, the market is probably encouraged to belief more cuts will be forthcoming. The fiscal side will be critical though and if the RBI feels the government's reform push is slipping, rate cuts will be put on the back burner.

"Indian equities have recovered earlier losses but are only up modestly. A more decent reaction in USD/INR but this move is probably being helped by the broader move lower in USD/Asia. Further downside in USD/INR is likely, although firmer support is likely to emerge around the low 53.60/high 53.50 region in terms of the spot market."


"The Reserve Bank of India is definitely less hawkish in its statement, and we think it will remain in the easing mode in 2013. We think they will cut the repo rate by another 50 basis points in the next five months.

"The cut in the cash reserve ratio is very positive for banks, but we think it will be the last CRR cut. However, the RBI will continue to buy bonds through its open market operation to ease tightness in liquidity."


"It is a small reduction. Industry was hoping for a 50 basis point cut but it is smaller than what we were expecting. Hopefully, rate cuts will happen progressively over the next couple of months. It is too early to say what will happen or how much will happen, but any reduction is good. But it has to be a meaningful number to trigger any revival or demand coming back. I don't think 25 basis points will make much of a difference (to demand scenario), unless over a period we see rate cuts of 150-200 basis points."

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