The Reserve Bank of India cut its repo rate by 25 basis points to 6.50 per cent on Tuesday, making a widely expected first reduction since September to bring the rate to its lowest in more than five years.
But in a surprise move, the RBI also raised the reverse repo - or the rates lenders charge to the central bank - by 25 basis points to 6.0 per cent, taking measures to ensure more availability of cash in the banking system.
Issac George, Group CFO, GVK, Hyderabad:
"Liquidity is available with banks even at this moment but they are hesitant to lend. They are looking for good investment rather than supporting a sector. The infrastructure sector right now is in the dumps. Banks are shy to support infrastructure companies because most loans have been downgraded. So not sure measures to increase liquidity will help.
"These rates make meaningful sense to the industry if they are passed on. We are not asking them to do it lock, stock and barrel but a substantial portion should be passed on. Banks tend to reduce rates to retail borrowers but the same does not happen for corporate or commercial borrowers."
R Sivakumar, Head of Fixed Income, Axis Asset Management, Mumbai:
"Looks like a lot of liquidity related developments, if you look at the narrowing of the corridor basically removes the risk on liquidity and ensures that the system is able to fund itself closer to the policy rate. The relaxation of daily CRR to 90 percent allows the system to handle short term volatility in cash flows better. Generally the measures announced today are meant to ensure the system has enough liquidity to operate close to the policy rate.
"There are two aspects to the policy statement one is of course the rate cuts which is part of the agenda but much more importantly there's recognition that tight liquidity was hampering the transmission of lower rates to the banking system."
Shakti Satapathy, A K Capital Services Ltd, Mumbai:
"The policy seems to be addressing the current liquidity situation more effectively as a tool of effective lending rate transmission rather than focusing on rate cut. The tone seems to be accommodative and considering the recent facilitation from government's end in managing the supply side along with favourable inflationary trajectory which is expected to be around 5 percent, we might see a further cut of around 25 bps between June 2016 and September 2016."
Rupa Rege Nitsure, Group Chief Economist, L&T Finance Holdings, Mumbai:
"The liquidity measures will create a downward bias in interest rates and yields. I expect 20-25 bps reduction in yields across all maturities until 5 year bonds though longer-term bonds will be beset with more uncertainties.
"But it is a good opportunity to raise funds for companies who have laid out business plans for next year and are in investment mode. They will be able to raise funds at competitive rates."
Shubhada Rao, Chief Economist, YES Bank, Mumbai:
"The policy sounds dovish. Greater focus is on liquidity management, more importantly the commentary is clearly guiding on further rate cuts, with four riders, namely: good monsoon, low headline CPI, softening core CPI and improving rate transmission. On these four parameters further rate cuts would play out."
Radhika Rao, Economist, DBS Bank, Singapore:
"In all, today's decision was more focused on addressing liquidity shortage and easing the transmission mechanism. There is a significant shift in their emphasis on the NDTL framework, narrowing the corridor around the operational repo rate and CRR changes. This is to ensure that the easy policy stance percolates to the real economy and materially lowers financing costs. These changes are likely to provide positive impetus to the financial markets in the near-term."
Rajeev Talwar, Chief Executive Officer, DLF Ltd, New Delhi:
"The cut is a good one if it is passed on by the banks and bank rates come down. The governor has been very conservative. The government has been much more proactive by easing FDI rules and taking other measures. The economy is on a recovery path despite the RBI. This round goes to the finance minister."
Mahantesh Sabarad, SBI Cap Securities Ltd, Mumbai:
"Whether we will have future rate cuts or not depends on what kind of stance the RBI Governor is taking. We expect there could be further rate cuts ahead. One of the important data points that the governor had to work with is that there is a normal monsoon forecast ... which is the first preliminary forecast. Therefore it tells me that there could be another rate cut by 25 basis points sometime during May-July."
Saugata Bhattacharya, Senior Economist, Axis Bank, Mumbai:
"Policy remains accommodative. Over the next two months, if rainfall conditions remain better and with an eye out on global economic conditions, they still have room for another 25 bps rate cut.
"On the rate corridor move, I think they are moving towards Phase II of the liquidity management framework, keeping overnight rates closer to policy rates. They're managing short-term rates well while keeping durable liquidity supply stable."
Arvind Chari, Head of Fixed Income and Alternatives at Quantum Advisors, Mumbai:
"Its move to bring system liquidity to neutral along with the narrowing of the corridor to 50 bps and CRR maintenance at 90 percent will allow overnight rates to remain very close to the repo rate or even drift marginally lower. We expect proactive OMOs to get the 'core' liquidity back to zero. Market seems to have though as of now ignored the projected increase in inflation by RBI and its rhetoric on impact of sixth pay recommendation. Although the door for another cut is open, but the bar is high now."
Prasanna, Economist, ICICI Securities Primary Dealership Ltd, Mumbai:
"The rate action was in line with our expectations. The narrowing of the LAF corridor is understandable however it may cause some uncertainty about stability of the corridor. The change in liquidity stance is surprising given the uncertainty surrounding the external profile and the buildup of forex assets. It remains to be seen whether RBI will be successful in achieving neutral liquidity balance."