As widely expected, the RBI, kept the repo rate unchanged at 8 per cent but cut the Statutory Liquidity Ratio (SLR) and held-to-maturity (HTM) by 50 basis points each. “The 50 basis points cut in SLR to 22 per cent from 22.5 per cent is expected to provide roughly Rs.40,000 crore growth-supportive liquidity to the system, and the move is not intended to trigger an interest rate cut,” said Ms. Bhattacharya.

The held-to-maturity (HTM) ceiling is being brought down by 50 basis points to 24 per cent of NDTL. “As all the major banks are holding less than 24 per cent in HTM, there will not be any immediate impact,” she added.

“We believe the retail inflation trajectory will be significantly benign in the current fiscal, but beyond November, the inflation trajectory will be on the upside, though the 8 per cent inflation target by January, 2015, looks sacrosanct,” said Ms. Bhattacharya.

“The 6 per cent retail inflation target looks challenging (remember, 6 per cent is the upper confidence level of the median RBI target at 4 per cent), and to that extent, the RBI will hold rates at least till that time it is not breached. Banks will, thus, need to factor possibly a prolonged policy pause in their decision making,” Ms. Bhattacharya added.

“The monetary policy statement is a reflection of the RBI’s continued commitment towards containing inflation. The policy acknowledges the gradual improvement in economic conditions and the government’s commitment to fiscal consolidation,” said ICICI Bank Managing Director and CEO Chanda Kochhar.

“The reduction in the statutory liquidity ratio is a welcome step as it would make more lendable resources available for various sectors of the economy. This is a pragmatic policy considering the current macro-economic environment,” Ms Kochhar added.

Indian Banks’ Association (IBA) Chairman K. R. Kamath said that anticipating an increase in the credit demand in the coming months, the RBI had reduced the SLR. With a view to enhancing liquidity in the money and debt markets the central bank had also brought down the ceiling on banks’ total holdings of SLR securities in the Held To Maturity category (HTM)“These two policy measures basically infuse growth-supportive liquidity in the system,” Mr. Kamath said.