BENGALURU (June 6): The Reserve Bank of India cut its policy interest rate by 25 basis points in a widely expected move on Thursday, while also changing its monetary policy stance to "accommodative" after the economy grew at its slowest pace in over four years in the January-March quarter.

The six-member monetary policy committee (MPC) cut the repo rate to 5.75% as predicted by 44 of 66 analysts polled by Reuters last week. The reverse repo rate was reduced to 5.50%.

COMMENTARY GARIMA KAPOOR, ECONOMIST AND VICE-PRESIDENT, ELARA CAPITAL, MUMBAI "A shift in stance to 'accommodative' is welcome as it will pave the way for transmission to lending rates, which so far have been inadequate."

"We expect the MPC to cut rates by an additional 50 bps through the year while continuing to fine-tune liquidity support through a combination of OMO purchases, forex swap and CRR cut."

PARTH MEHTA, MD, PARADIGM REALTY, MUMBAI "The rate cut of 25 bps was imperative to induce liquidity in the downward spiral economy on the back of all indicators showing slowdown."

"The stance change from 'neutral' to 'accommodative' by the RBI indicates the cognizance about the current fragile business environment and we expect further rate cuts."

"Rate cuts shall enable affordability in terms of home loans and thus lower equated monthly instalment (EMI), lower GST, and tax rebate for the middle class as per the interim budget. All these shall give some sales impetus to the real estate sector."

NARENDAR PANI, DEAN, SCHOOL OF SOCIAL SCIENCES, NATIONAL INSTITUTE OF ADVANCED STUDIES, BENGALURU "While the RBI's effort is no doubt to boost investment, it is not clear how much of the reduction in repo rates will be passed on. The criminalisation of large defaults brings with it a discomfort among bankers to be associated with very large loans. Less successful commercial banks may also feel the need to keep their credit deposit ratios low, in case they suddenly need to write off large NPAs. They may not be too enthusiastic about lowering rates to increase credit."

"Secondly, a large part of the crisis is one of demand rather than supply. Interest rate cuts are designed to increase the supply of funds for investment, and would not have a direct effect on demand. The route to boosting the economy may then lie more in the fiscal policy rather than the monetary policy. An excessive reliance on easing money supply, when production is constrained by demand, could be inflationary." SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI "The change in stance to 'accommodative' was a bit of a surprise. Debt markets will take this as a significant positive move, though most of the rate cut cycle is probably over. The tone of the RBI policy was dovish and highlights the concerns on growth."

"We maintain our call for another 25-bp rate cut in August factoring in the benign inflation trajectory and growing concerns on growth."

"However, the transmission of rate cuts will be key and the RBI should aim to maintain liquidity, at least at neutral over the next few months." SAKSHI GUPTA, ECONOMIST, HDFC BANK, GURGAON "If growth impulses continue to remain weak in Q1, below the RBI's target, and inflation impulses remain muted given normal monsoons, there is room for another rate cut of 25 bps in August."

"On growth, high frequency indicators continue to signal lower activity in Q1. Further, an unfavourable base effect could mean that GDP growth numbers remain muted in H1 FY19-20. Some pick-up in activity is expected in H2. For the year, growth forecast is 7%."

"The government is likely to stick to its fiscal deficit target announced in the interim budget of 3.4% of GDP. That said, higher growth will be necessary to achieve this target."

ANAGHA DEODHAR, ECONOMIST, ICICI SECURITIES, MUMBAI "The recently released GDP numbers show that growth is faltering. Given the challenging domestic and global environment, growth is likely to remain weak in H2FY20. Although supporting growth is not the MPC's primary mandate, in the current environment it has assumed greater significance."

"Given the lower growth and inflation expectations, it was apt to change the stance to 'accommodative'. It indicates that more rate cuts are on the table – possibly in the next policy itself."

"The government is likely to continue walking on the fiscal consolidation path. We do not expect large-scale sops in the budget as the government is walking on a tight rope when it comes to the fiscal situation. However, we could see increased focus on employment generation, labour-intensive industries and boosting investments."

DEVENDRA PANT, CHIEF ECONOMIST, INDIA RATINGS, NEW DELHI "The 25-bp cut with 'accommodative' stance with 6-0 vote shows that with inflation below the RBI's target of 4%, growth concerns have come to the forefront. By changing its stance, the RBI has communicated to the market that the growth slowdown is real."

"A working group on liquidity is a welcome step. With system liquidity in surplus mode in the past few days, lending rates should come down."

"The forthcoming budget is the real test for the government. The government has to find money for social spending and undertake some hard reforms to improve tax collection and adhere to the fiscal consolidation trajectory." JOSEPH THOMAS, HEAD RESEARCH, EMKAY WEALTH MANAGEMENT, MUMBAI "The RBI policy is exactly on the lines expected by most of the market participants. The repo rate cut of 0.25% and the change of stance from 'neutral' to 'accommodative' is key to supporting the sagging economic growth."

"The projected growth has been lowered to 7%. The policy also has broad indications of more actions on the liquidity front from the RBI in the coming days. This also confirms the commitment of the central bank to better transmission of the rate-cut effects through liquidity."

RUPA REGE NITSURE, CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI "Today's policy actions are perfect and give a clear signal that the RBI will continue with easy monetary conditions until it sees a definite improvement in growth-inflation mix."

"Going by the macro undercurrents, the rate-cutting cycle will continue in the coming quarters as well."

"Recent GDP numbers were consistent with the slowdown predicted by high frequency leading indicators and the RBI has taken a serious note of it."

"The government too will address growth concerns in its upcoming full Budget in July and there are pleasant signs that both the government and the RBI will work in tandem to pull the economy out of the trap."

"Transmission will happen meaningfully if the banking system witnesses surplus liquidity conditions for a sizeable period and if the RBI undertakes confidence boosting measures for the NBFC sector."