New Delhi: Top bankers on Friday hailed the Reserve Bank’s decision to reduce repo rate by 50 basis points to 5.50 per cent and cash reserve ratio (CRR) by 100 basis points in four tranches, saying the policy move is expected to provide the necessary drive for credit expansion in priority sectors which will enhance the financial inclusion.
Besides this, the revision in CPI inflation to 3.7 per cent for FY26 also shows the RBI’s confidence in inflation being aligned with its 4 per cent target.
“The decision in CRR cut, which is expected to release Rs 2.5 lakh crore in primary liquidity, will ease credit conditions in the banking system. This overall policy reflects a well-calibrated and thoughtful approach with the GDP projected at 6.5 per cent in FY26 and a steady quarterly trend,” said Ajay Kumar Srivastava, MD and CEO, Indian Overseas Bank.
The pickup in non-gold imports and a 14 per cent increase in gross FDI also indicate robust domestic demand and global investor confidence in India’s structural strength.
These steps, said bankers, will ensure the durability of the nascent resurgence in the domestic demand led by private spending.
“The key learning from the policy is that the central bank is not leaving any stones unturned to ensure price stability, at the same time doing everything it takes to support growth,” said Vinod Francis, General Manager, Chief Financial Officer, South Indian Bank.
With tariff uncertainty casting a long shadow over external demand (exports), the RBI’s sharp focus on supporting domestic demand and enhancing the lending power of the banking sector underpins its policy path during the current easing cycle by addressing key concerns on both demand and supply sides, he mentioned.
The MPC has surprised markets with a big bang set of measures. This clearly comes from the perspective of frontloading actions to enable support to growth, considering the lag effects of transmission.
“At the same time, the shift of stance to neutral has meant that the policy rates may possibly level off at 5.50 per cent in the current cycle. However, this would remain a moving target with incremental data points likely to shape the outcome,” according to Rajeev Radhakrishna, CIO, Fixed Income, SBI Mutual Fund.
Indranil Pan, Chief Economist, YES BANK, said the RBI now focuses on the transmission mechanism, which has been slow to start with and is still not significantly visible for the credit markets.
The significant CRR reduction would ensure a lowering of the cost of funds for the banking system, thereby ensuring transmission of the 100 bps repo rate reduction.
“Going ahead, we still think there is a chance for a last 25 bps cut, but the timing of the same remains uncertain,” Pan added.
(IANS)
