RBI’s repo rate cut by 50 bsp, CRR by 100 bsp will boost country’s economy

Mumbai, June 06

The RBI, post its monetary policy committee meet, has cut its repo rate by 50 basis points. Now, the repo rate stands at 5.5 per cent from 6 per cent earlier. Moreover, it brought down cash reserve ratio by 100 basis points. It is all set to boost up the country’s economy, feel experts.

Pallav Bagaria, Director at Sapient Finserv says, “Even rain gods can’t stop smiling and neither can the markets. A bold 50 bps rate cut signals the RBI’s unwavering commitment to growth. With good macros backing it, RBI has actually shown the world that this isn’t just a policy — this is 'Policy making – A Make in India initiative'.

I think the cage is open for the ‘emerging market’ bird to fly.”

However, a section of people think that the higher-than-expected 50bp rate cut decision by the MPC, though positive for growth is slightly negative from the market perspective for the near-term.

VK Vijayakumar, Chief Investment Strategist, Geojit Investments says, “This big rate cut is, as the RBI Governor remarked, front-loading of the rate cut. The change in monetary stance from accommodative to neutral also indicates that more rate cuts are unlikely unless the situation warrants.”

This big rate cut will impact the margins of the banks and, therefore, bank stocks will be under pressure in the near-term. However, the credit growth that this rate cut will hopefully stimulate will compensate for the dip in margins.

EoM.