“Dr Rajan surprised the market with a deeper than expected rate cut. This cut comes as a balm for anxious markets and I see the relieved celebration in the equity and fixed income markets. This pre- Dusshera / Diwali gift will lift the festive demand as banks will hopefully start reducing the cost of consumer loans. The industry’s expectation of a turnaround in demand led growth in the second half will now be well anchored.
The cut, the prognosis of lower inflation and therefore this indication of an accommodative stance, all provide for enabling & softening the financial market conditions. This provides relief from the uncertainty surrounding the US Fed rate lift-off and its impact on Indian markets. The phasing of lower SLRs, and the increase in FPI limits to sizable levels over the next 2-3 years are measures which are important “invest in India” policies. The RBI’s fast paced slew of actions in respect of redefining ECBs, partial credit enhancement and now this policy itself points toward a regime of parity with international borrowing costs for Indian corporates.”