Rate cut on anticipated lines, liquidity concerns addressed: BS Jury

Arundhati Bhattacharya
Chairman, State Bank of India

The decision to keep liquidity deficit at neutral and narrowing the corridor will result in a predictable and stable liquidity regime, facilitating better transmission across markets. In India, the task of liquidity management is often more complex and challenging, as it is more varied in emerging markets, often oscillating between surplus and shortage conditions.

Against this, the decision to narrow the band is a bold step but will require the Reserve Bank to be in a constant watch mode to ensure overnight rates do not move outside the corridor. Overall, the policy has a slew of positive surprises, with the most notable being the projection of a benign inflation trajectory throughout FY17 and reaffirmation of a continued accommodative policy.

Zarin Daruwala
CEO, StanChart Bank, India

While the 25-basis point rate cut is broadly in line with expectations, what is more encouraging are the steps taken towards addressing the larger liquidity issues in the system. Tuesday's announcements regarding the move towards a neutral liquidity regime - through provision of durable liquidity - should facilitate policy transmission and come as a relief for banks. As policy framework, this aligns the liquidity framework to the overall monetary policy stance - a responsive and defining policy announcement, with positive actions. With its view on inflation - decelerating modestly to stay around the five per cent mark - and the overall accommodative stance, we could expect a further easing of rates over the rest of the year.

Adi Godrej
Chairman, Godrej Group

In my view, the rate cut should have been 50 basis points (bps) rather than 25 bps, the current cut is inadequate. While the measures to improve liquidity are welcome, the interest rate regime will have to be lower. Real interest rates in India are high, pushing up cost of funds for individuals as well as corporates.

If consumption and private sector investment have to improve, interest rates have to be lower than what they are at the moment. This was the right time to do it. Global commodity prices are on the lower side, the Wholesale Price Index is negative, and while crude oil prices increased in the past fortnight, it has fallen again.

A sharper rate cut would have been better.

Keki Mistry
Vice-Chairman & MD, HDFC

A cut in rates was expected, with only the scale of reduction being in question. While some were expecting a more aggressive cut, the Reserve Bank of India (RBI)'s decision to cut it by 25 basis points (bps) was a rational move, based on a number of favourable indicators that have encouraged monetary easing. The movement towards the marginal cost of funds-based lending is expected to improve monetary transmission, which will ultimately benefit the consumer. This monetary policy has been geared towards infusing liquidity into the system. There is scope for more rate cuts this year. However, RBI will make this assessment based on favourable outcomes such as good monsoons, the global environment, liquidity conditions and Consumer Price Index-based inflation.

Pramit Jhaveri
CEO, Citi India

A rate cut was expected by the market and was consistent with the Reserve Bank of India (RBI)'s approach to ease rates, based on inflation and growth dynamics. In addition, the framework announced by RBI to improve liquidity conditions are welcome and we expect these measures to significantly enhance the effectiveness of rate cuts and aid in transmission.

An accommodative monetary stance is likely to be more effective, if accompanied by benign liquidity conditions. The narrowing of the policy rate corridor from 100 basis points (bps) to 50bps will help in improving the quantum of liquidity and reduce short-term costs. Other initiatives announced are indicative of RBI's objectives to continue to reform and deepen the financial markets.

Rashesh Shah
Chairman, Edelweiss Group

The Reserve Bank of India (RBI) is looking to ease liquidity. The likely impact will include ease in transmission across financial markets and lending rates. RBI remains concerned about core inflation. If the monsoon is normal, one could expect further cuts.

After the Urjit Patel committee report, RBI was reluctant to do open market operations to infuse liquidity. This resulted in a divergence between reserve money growth and the durable liquidity required for growth, resulting in money market rates inching higher and inadequate rate cut transmission. This indicates the amount of liquidity, too, affects monetary easing.

We believe RBI plans to step up supply of durable liquidity.