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Expert Views On RBI Policy Rate, CRR Cut

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The RBI reduced its policy interest rate by a widely expected 25 basis points, taking comfort from cooling inflation as it made the first cut in nine months to support an economy headed for its slowest growth in a decade.
 
The Reserve Bank of India cut its key repo rate to 7.75 per cent, as forecast by a Reuters poll.
 
The RBI unexpectedly also reduced the cash reserve ratio (CRR), the share of deposits banks must keep with the central bank by 25 bps to 4 per cent, which will infuse an additional Rs 18,000 crore into the banking system.
 
Expert Views:
Radhika Rao, Economist, Forecast PTE, Singapore
"It is a timely reduction in the repo rate by the central bank though markets are swiftly likely to look beyond the priced-in move and focus on the policy guidance. RBI has not abandoned its cautious stance, stressing on the 'calibrated and limited' nature of rate support hereon. Scale of rate cuts is closely tied to the government's sustained efforts to correct the twin imbalances and moderating inflation trajectory. Even as few quarters price in substantial rate cuts going forward, we see room for only 75 bps more cuts by end-year."
 
Jonathan Cavenagh, strategist, Westpac, Singapore
"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."
 
Sujan Hajra, chief economist, Anand Rathi Securities, Mumbai
"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."
 
Dariusz Kowalczyk, senior analyst, credit agrcole CIB, Hong Kong 
"RBI cuts rates 25 bps as expected but also, unexpectedly, lowered the CRR, providing more support to the economy than markets anticipated.
 
"The statement points to further, albeit modest, room for easing, as FY13 GDP growth forecast is lowered by 0.3 percentage point to 5.5 percent and March WPI forecast is cut by 0.7 percentage point to 6.8 percent. Overall, this should boost the INR, push down G-Sec yields and INR OIS at the short end, and lead to a steepening move on the curves."
 
Rupa Rege Nitsure, chief economist, Bank Of Baroda, Mumbai
"In broader terms, monetary policy is supportive of growth. This is substantial easing of 50 basis points, the repo and the CRR together. There is definitely scope for lending rates to come down. However, further growth outlook now depends on the structural reform measures that are likely to be introduced in the union budget.
 
"The revised inflation projection of 6.8 percent for March is likely to be achieved provided there is no further increase in administered prices of either fuel or foodgrains."
 
A. Prasanna, economist, ICICI Securities, Primary Dealership Ltd, Mumbai 
"In terms of guidance there maybe another 25 basis points cut in the repo rate in March, but the policy is finely balanced. There are upside risks to inflation and it is not a given that a rate cut will happen in March. It may happen in May policy. But from hereon we do not expect any more CRR cuts over the next six months, the central bank would rely on open market operations."
 
Sriram Khattar, senior executive director, DLF, New Delhi
"The tangible benefits will only come in the medium term after about three to six months but it will immediately boost sentiment. Housing demand has more to do with sentiment so if that improves, demand will also improve."
 
J.C. Sharma, MD, Sobha Developers, Bangalore 
"This is a good trigger. Because the real estate sector is rate sensitive the market believes that any rate cut will help push demand. From a customer's point of view this will improve liquidity and reduce the interest burden."
 
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