RBI rate cut focused on enhancing development
While the expectation was a rate cut of 25 basis points, the MPC went in for a 50 point cut at its conference on Friday. It is also clear that the rate cut was an indicator of its absence of self-confidence in the capability of the economy to sustain the 7.4% development in the March quarter without more policy support. While the rate cut will make cheaper credit available to corporates and people, the CRR cut will make it possible for better transmission as banks will have to keep less funds with themselves.
While the expectation was a rate cut of 25 basis points, the MPC went in for a 50 point cut at its meeting on Friday. It is likewise clear that the rate cut was an indication of its absence of self-confidence in the ability of the economy to sustain the 7.4% growth in the March quarter without more policy assistance. While the rate cut will make less expensive credit offered to individuals and corporates, the CRR cut will enable better transmission as banks will have to keep less funds with themselves. The RBI has likewise shifted its position from accommodative to neutral, which reveals that there may not be any more rate cuts in the near term.
