The Reserve Bank of India (RBI) cut its benchmark repo rate by 25 basis points for the second straight time, having cut its rate for the first time in five years back in February. With this, the repo rate now stands at 6% from 6.25% earlier. The RBI policy was distinctly more dovish than the market expected. Everyone expected a rate cut. But only a minority expected a change in stance to accommodative. Secondly few expected the RBI to cut both its growth and inflation forecast. That was a doubly dovish delight. Thirdly post the press conference, some in the market are veering to the view that RBI may take the repo rate to as low as 5.25%. Finally, the governor almost seemed to assure that he will keep liquidity surplus upto 1% of deposits i.e. around ₹2 trillion.
