Banks and realty among the most hit on account of high borrowing costs.
Will work full day on other Saturdays; bank branches to be shut on 2nd, 4th Saturday from next month
The RBI has hiked repo or short-term lending rate up by 0.25 pc to 7.75 pc.
Of the 52 economists polled, 50 expect the policy repo rate to remain at 7.25 per cent, and 47 of 48 respondents see the cash reserve ratio, or the portion of deposits banks have to maintain with the central bank, unchanged at 4 per cent.
Investor wealth on Tuesday soared by nearly Rs 1 lakh crore as stocks rallied after the RBI hiked a key policy rate to tame inflation while enhancing liquidity for the banking system.
The Indian currency resumed lower at 61.50 per dollar as against the last closing level of 61.46 at the Interbank Foreign Exchange Market.
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Bankers remained ambivalent on the impact of Tuesday's policy announcement by Reserve Bank on the cost of funds and refrained from giving a guidance on the direction in which lending rates are headed.
The repo rate, at which the central bank lends to the system, will come down to 5.75 per cent after the cut.
The Reserve Bank of India hiked key interest rates by 0.25 per cent each in the last two reviews to tame inflation.
The gains will be gradual as the measure will be executed over 12 months or so.
With the revision, term deposit between 180-210 days less than Rs 1 crore (Rs 10 million) would now earn 7 per cent against existing 6.80 per cent, SBI said in a statement.
The rupee got a boost as stock market investors cheered the Reserve Bank's steps. Fresh dollar sales by exporters amid sustained capital inflows also supported the local currency.
Reserve Bank, in its mid term review of the monetary policy on Friday, decided to hike short term policy rate by 0.25 per cent after a gap of two years and ease liquidity by reducing the marginal standing facility rate for banks.
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Steps announced by new RBI Governor Raghuram Rajan could attract $10 billion of forex inflows in the next three months and this could be a material near-term positive for the rupee, which has lost 20 per cent since January, the London-based banking and financial services company said.
On July 15, the Reserve Bank put in place measures to restore stability in the foreign exchange market, including raising the Marginal Standing Facility and bank rates to 10.25 per cent and restricting access by way of repos to Rs 75,000 crore (Rs 750 billion).
With the stock markets scaling new heights, Finance Minister P Chidambaram on Friday sounded a note of caution and asked investors to guard against excessive exuberance.
Pressure has been mounting on the Reserve Bank of India to cut interest rates in the wake of declining retail inflation and the need to fuel growth momentum. However, the RBI will have to do a tightrope walk as globally interest rates are inching upwards.
RBI Governor Raghuram Rajan on Tuesday said the Finance Ministry's decision to provide more capital to PSU banks will lower the borrowing cost and increase their capacity to lend, besides promoting investments.
The central bank will auction Rs 220,00 crore (Rs 220 billion) of government cash management bills every Monday, it said in a statement, without specifying for how many weeks the sales would last.
With RBI likely to make credit costlier and banks to follow, some ideas on switching money to be able to do this.
Gold prices are already moving fast to the key level of Rs 30,000 per 10 gms
Interest rate sensitive stocks gain ground post decision
None of the four benchmarks suggested by the RBI is ideal as banks in India create loan assets from their deposits and not borrowing from the regulator or market, says Tamal Bandyopadhyay.
FPIs, which are holding large exposures in Indian debt, could also be expected to book some capital gains as yields slide down
To neutralise this, RBI has been doing forward swaps
The monetary authority said it was worried on three fronts with regard to inflation as well as the economy.
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A section of the market believes RBI should hold rates as negative real rates will hurt savings and investment.
CRR remains unchanged at 4%; first repo rate cut since May 2013.
He endorsed transparency and financial stability in addition to issues related to inclusive growth and development, write Puran Singh and Nupur Pavan Bang.
The RBI needs to maintain a healthy contingency reserve so that it can lend its support in case of a bank failure.
Broking firm Jefferies says Indian financial system is now flooded with the kind of liquidity witnessed in 2005-07 and 2009-10
According to the research arm of the country's largest lender State Bank of India, with stability in the currency, the RBI Governor is likely to lower the marginal standing facility rate, at which the RBI lends to the banks, once the lenders exhaust their overnight repo borrowing limits.
An action on the rate front is unlikely to figure in Rajan's plan for the moment.
Commercial papers, certificates of deposit also dry up
After two rate hikes in less than six weeks aimed at curbing inflation, RBI Governor Raghuam Rajan on Wednesday said the central bank may be done with interest rate increases as their impact on the economy is assessed.
Governor Raghuram Rajan's move to cut the MSF rate, at which banks borrow if they exceed their repo borrowing limits, by 0.50 per cent to 9 per cent should not be construed as a reversal in his policy stance and is more of a normalising measure, Citi said in a note.
RBI has taken a balanced approach in the credit policy considering various developments across the globe and their near term impact.
Banks have taken this aggressive posture even as liquidity has become comfortable on the back of increased government spending.
Banks might hold on to lending rates for the time being.
Analysts expect RBI to restore 100-bp corridor in Tuesday's policy review.
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