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RBI surprises markets by cutting Repo rate by 50 bps to 8% today:

April 20, 2012

A cut of 25 bps was already being factored in by the market participants. For the first time in nearly three years after following a tight policy regime, RBI has finally triggered off its monetary easing stance. This is on the back of faltering economic growth and seemingly softening inflation. India's economy grew just 6.1 percent in the December quarter, its slowest in nearly three years. The WPI inflation for 12 months ended March 2012 stood at 6.89%, lower from earlier month’s figure of 6.95%.

The fixed income market cheered RBI’s move as 10-year benchmark bond yield eased from 8.48% levels seen earlier today to 8.34% post the rate cut announcement.

Highlights of the Annual Monetary Policy Review of RBI
Baseline growth for Indian GDP is projected at 7.3% for FY12-13. Indian economic growth is expected to moderately resurrect in the fourth quarter of FY11-12
Monetary policy easing may be slow given the inflationary risks continuing to persist
Projection for WPI inflation for March 2013 is placed at 6.5 per cent.
M3 growth for 2012-13, for policy purposes, is projected at 15 per cent.
Reverse Repo rate stands adjusted at 7% (Spread of 100 bps below Repo) while Marginal Standing Facility (MFS) now stands at 9% (Spread of 100 bps above Repo). 

RBI’s Monetary Policy stance:

Policy stance is to cautiously adopt rate cuts keeping in mind the growth moderation and at the same time guarding against risks of demand-led inflationary pressures. At the same time, RBI aims to provide a greater liquidity cushion to the financial system.

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