Search for certainty

The RBI has done nearly all it can

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In a world of economic uncertainties, the Reserve Bank of India (RBI) last week made a bold attempt to provide the Indian financial system and economy at large some certainty. The monetary policy committee (MPC), in its second meeting of the financial year, decided to reduce the policy repo rate by 50 basis points to 5.5 per cent on Friday. The consensus in the market was for a 25-basis-point cut. The MPC clearly aimed to frontload policy accommodation to boost economic activities.

With last week's rate reduction, the MPC has reduced the policy repo rate by 100 basis points in the current cycle. Further, in addition to the larger than expected rate cut, the RBI decided to reduce the cash reserve ratio (CRR) by 100 basis points to 3 per cent, which will be implemented in four stages, adding durable liquidity worth ₹2.5 trillion to the system.