RBI rate cut positive for growth and markets

The Reserve Bank of India (RBI) cut its key repo rate by a bigger-than-expected 50 basis points to 6.75 percent on Tuesday, with inflation running at record lows and the economy in danger of slowing down.

A Reuters poll last week showed only one out of 51 economists had expected a 50 basis points rate cut, while 45 had expected a 25 bps cut.

Commentary

Rupa Nege Nitsure, Chief Economist, L&T Finance Holdings, Mumbai

"A higher than expected easing is certainly bond positive. How, it gets transmitted to the real sector via credit markets remains a concern given the huge pile of stressed assets in the banking system. The use of the term front loading clearly signals that there is going to be a long pause after today's move."

Navneet Munot, Chief Investment Officer, SBI Funds Management, Mumbai

"A cut of this magnitude was warranted and this will have positive ramifications on growth and markets. We should test 7.50 percent on 10-year yield with potential to go even lower. The linkage of real rates to 1-year treasury bill opens up room for further rate cuts."

Atsi Sheth, Associate Managing Director, Sovereign Risk Group, Moody's Investors Service, Singapore

"The extent of the cut was higher than market consensus, suggesting that RBI sees underlying growth trends as still subdued enough to require more aggressive stimulus. It also suggests that inflation is not the key risk at this time, in the RBI's view." 

Kunal Shah, Debt Fund Manager, Kotak Life Insurance, Mumbai

"It is a positive surprise but some growth worries have also been recognised by RBI. It is overall positive for growth and markets. This is the first time RBI has said that it wants to keep real rates benchmarked to 1-year treasury bill. The 10-year benchmark bond yield may fall to 7.50 percent. The absence of monsoon fears is also another positive on food inflation."