Bankers see rates falling by 25-40 bps more before March

Welcoming the 25 basis points rate cut-fifth in a row and to a decadal low of 5.15% on Friday--bankers are expecting 25-40 bps more reduction through the course of the fiscal, given the Reserve Bank's focus on growth that has been sagging for months now. HDFC Bank's chief economist and executive vice-president Abheek Barua said though the latest rate cut was on expected lines, the market was disappointed as they were expecting a larger cut. Of the six-member rate-setting monetary policy committee, five members voted for a 25 bps cut while one by 40 bps, the RBI said.  

"The 25 bps rate cut coupled with an explicit policy acknowledgment of further rate cuts would ensure that fiscal and monetary policy work in tandem in arresting growth concerns," SBI chairman Rajnish Kumar said.

Barua said while markets are somewhat disappointed, as they were expecting a larger cut, the latest cut needs to be seen cumulatively with the 110 bps reduction so far this year-taking the cumulative cut to 135 bps since February. Recognising the weak growth outlook, the RBI sharply lowered its GDP estimate to 6.1% in FY20 from 6.9% previously. The RBI clearly signalled its continued focus to revive growth, implying that more rate cuts are in the offing. 

Read: RBI Cuts Key Repo Rate By 35 Basis Points, 4th In Row

Possibility of further rate reductions

"We expect 25-40 bps more cuts in this fiscal," Barua said, adding RBI is also likely to keep liquidity conditions in surplus in the remaining part of the year. 

StanChart chief executive Zarin Daruwala said the RBI reaffirmed its strong commitment to growth with the latest reduction and continuing with its accommodative stance. 

 "The cumulative reduction of 135 bps so far in 2019, along with the recent cut in corporate tax should help revive growth in the coming months," she said.  

Read: RBI To Further Cut Rates In Next Month's Monetary Policy Review

The newly-appointed managing director of Punjab National Bank Mallikarjuna Rao said the RBI has continued with an accommodative stance, suggesting the possibility of further rate reductions. 

"This rate cut will perfectly complement the fiscal measures announced by the government to help strengthen private consumption and spur investment activity going forward," Rao said.

'Expect the demand to improve'

Indian Bank managing director Padmaja Chunduru said with inflation being within the target, the forward guidance remains accommodative to revive growth. 

"We believe that the transmission will be faster now that banks have already introduced repo-linked retail and MSE products and the rate cuts will be passed on to these borrowers," she said. 

Read: RBI Plays Down Deepening Slowdown As Just 'cyclical Downswing'

With the busy and festive season having started, this rate cut will boost market sentiments. 

"We expect the demand to improve and the main challenge now is to revive consumption-led recovery and spur private investments post tax corporate rate cuts," she added.  

Kotak Mahindra Bank's president for consumer banking Shanti Ekambaram said the ongoing festive season is critical from a consumption revival and further monetary policy action will depend on the impact of the twin benefits of fiscal and monetary policies on demand and growth. Syndicate Bank managing director Mrutyunjay Mahapatra said combined with fiscal stimulus like tax rate cuts and investment incentivization, the sentiments and the overall economic outlook is expected to be much better. IBA chief executive VG Kannan said once again the RBI has given more thrust to growth than inflation and also supplemented the recent government measures to propel domestic growth. 

Read: RBI Policy Review: Monetary Policy Committee Announces Third Repo Rate-cut In As Many Reviews, Sets Benchmark At 5.75% And Shifts Stance To 'accommodative'