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Rate cut shows RBI desperate to put economy back on track, say D-St analysts

It was fourth rate cut by the RBI in a row. The short-term lending rate now stands at 5.40%.

ETMarkets.com|
Updated: Aug 07, 2019, 01.32 PM IST
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The Reserve Bank of India on Wednesday cut interest rates by more-than-expected 35 basis points, to boost a sluggish economy.

It was fourth rate cut by the central bank in a row. The short-term lender rate now stands at 5.40 per cent.

The RBI has also cut GDP estimate to 6.9 per cent. Inflation (CPI) risk remained evenly balanced, it said.

Here's how Dalal Street analysts and economists reacted to the RBI policy decision:

Sujan Hajra, Chief Economist, Anand Rathi Securities

The 35-bp rate cut is higher than the consensus and our expectations of a 25 bps rate cut. This clearly shows the RBI's concern about growth performance and outlook, and the urgency to take measures to revive growth.

Abheek Barua, Chief Economist, HDFC Bank
RBI is not sending a panic signal, but is doing a little more than what a 25 bps cut would do. I did not think Das would go in for these non-conventional quantum of increases. I do not think it will necessarily create too much panic in the markets, which had sort of anticipated if he had done a 50 bps that would have said that look we are really-really worried, this is in the sense we are kind of worried, we know that it is worse than anticipated but it is not.

Rupa Rege Nitsure, Chief Economist, L&T Financial
The RBI has done the maximum that a central bank can do in the current phase of economic slowdown.

By significantly revising downwards the GDP growth for H1FY20, it has signalled the concerns on the growth front. However, the weight of structural factors has increased in India's ongoing slowdown and it is now absolutely essential for the central and state governments to work in partnership to resolve some of the sticky sector-specific issues and concerns.

Shubhada Rao, Chief Economist, YES Bank
Welcome the 35-bp rate cut. Growth is likely to be revised down further from 6.9%. Given the well-anchored inflation, we believe that the RBI is set to cut rates in the next policy review in October. It could be 15/20 bps also. It is clear that reviving growth has received most attention.

Parth Mehta, Managing Director, Paradigm Realty
This shall help faster transmission of rate cuts as already banks are standing with excess liquidity and now will be compelled to deploy in good assets for which rate cuts benefits need to be passed on in the form of cheaper consumption finance loans linked to auto, home loans and personal loans, among others. The credit growth is very important for inducing investment cycles to return back. With surplus liquidity in hand and repo rate standing almost 110 bps lower at 5.4% from start of 2019, the transmission of aggressive rate cuts by banks should follow and spur credit growth propelling consumer spending hence bringing back healthier economic growth.

K Joseph Thomas, Head Research, Emkay Wealth Management
The RBI policy takes cognizance of the need to bring down interest cost on liquidity and credit, to support the sluggish economic growth and to stimulate aggregate demand. The success of this accommodative policy would depend entirely on the next level of its application, that is, the transmission of the lower rates to the ultimate borrowers. The banks seem to be seized of this need and effective cascading of the benefits of lower base rate may happen over the next few months.

Dheeraj Singh, Head of Investments, Taurus AMC
The RBI committee seems to have tried to tread a middle path by cutting rates but by an odd amount of 35 basis points instead of the usual 25 bps or 50 bps. Markets had already factored in 25 bps cut and so a 25 bps cut may not have enthused markets and therefore done little to address growth concerns. The committee however seemed to view a 50 basis point cut as a little excessive, especially in view of the fact that rates have been reduced in the recent past, the benefits of which have yet to be passed on to customers by the banking sector.
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