RBI PRE-EMPTS; CUTS CRR RATE (EXPERTS' REACTION)

The Reserve Bank of India on Friday cut the cash reserve ratio for banks by 75 basis points in order to ease tight liquidity in the banking system.

The RBI cut the cash reserve ratio, the share of deposits banks must hold with the central bank, to 4.75 percent, effective Saturday, less than a week ahead of its mid-quarter policy review on March 15.

EXPERTS' REACTIONS:

A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI

"This is surprising. After this cut, no change is expected in the RBI's policy review on Thursday. The cut should by and large take care of the liquidity deficit, and I don't expect the overnight cash rates to get into double digits after the tax outflows happen.

"I expect the 10-year yield to recover some lost ground, and come back to 8.25 percent on Monday. I expect another cut in the CRR in April, by another 25 basis points."

SAUGATA BHATTACHARYA, ECONOMIST, AXIS BANK, MUMBAI

"My sense is that the RBI will not probably do anything more on the 15th. This is much higher than what the markets were expecting. This move will certainly ease the crunch created by the advance tax outflows."

DEVEN CHOKSEY, CEO, K R CHOKSEY SHARES AND SECURITIES, MUMBAI

"This is a very positive move. The RBI was expected to cut the CRR rate in the policy announcement on March 15. By doing it a little earlier, they (the RBI) have brought liquidity in the system to cover what could have put a large strain on the banks."

GAJENDRA NAGPAL, CEO, UNICON FINANCIAL, NEW DELHI

"This is a surprising move but it's definitely a step in the right direction. This will ensure that liquidity situation improves in the market and smooth credit flows to priority sectors. The move brings us closer to a cut in the interest rates."

N.S. VENKATESH, HEAD OF TREASURY, IDBI BANK, MUMBAI

"By doing this, RBI injects liquidity into the system so it will take care of productive credit requirements without putting much pressure on liquidity. It will add to the bottom lines of banks.

"Considering the fact that the GDP numbers indicated that growth is slowing down and also inflation numbers have tapered down, I think, RBI will be able to look at cutting rates in the April policy but they will definitely look at the budget numbers to look whether fiscal consolidation is happening."

ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI

"The press release does not indicate a change in stance as far as repo rate is concerned. We don't expect a repo rate cut on March 15. This move was needed because of the tight liquidity situation in the system."

ASHISH VAIDYA, EXECUTIVE DIRECTOR AND HEAD OF INTEREST RATES, UBS

"I think this move was done to settle any fears about liquidity after the advance tax payments on March 15. The initial reaction in bonds will be a fall of about 2-3 basis points. We should see the one-year swaps fall to 8.05.