By Ruma Dubey

The market largely was expecting a rate cut – whether it would be 25 bps or 50 bps; that was the big question.

RBI pulled a fast one and sat tight on the rates; there was no change in repo rates, no change in CRR too. But the statement showed that overall it had a hawkish outlook, bearish on the growth rate, cutting it by 50 bps, from 7.6% to 7.1%.

The markets were holding firm till the policy statement came and after that, seeing that there was no rate cut, the indices fell like dominoes, with PSU banks leading the rapid fall. But soon enough, the market showed its resilience and recouped the losses.

What was extremely welcoming this time is that that MPC panel, including Urjit Patel took questions from the Press and it was not a brusque, rush-rush and rude kind of meet like last time. This time around, the RBI seems to have corrected its past mistake and answered all questions with great patience.

The statement had less to say than the ensuing Press Conference. A quick look at the statements:

• Repo rates unchanged at 6.25%
• Reverse repo rate under the LAF remains unchanged at 5.75% and marginal standing facility (MSF) rate and the Bank Rate stands at 6.75%
• Incremental CRR withdrawn from 10^th December
• The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth.
• Demonetization might bring down CPI by 10-15 bps in December
• Over Rs.1900 crore notes supplied  till 5^th December
• Old notes worth Rs.11.55 lakh crore back in circulation.
• Given an October rate cut, a rate cut at this juncture was not warranted
• No special dividend to Govt on legal tender withdrawal
• Today’s policy has nothing to do with upcoming Fed policy next week
• Rate cuts ahead – will wait for more data to come before taking a decision.
• RBI, central Govt’s currency printing press working at full capacity.
• Recalibrated printing to Rs.100 and Rs.500 notes over last two weeks
• Demonetization decision was not taken in haste, was deliberated and actions were thought ahead
• Call demonetization as a temporary issue; seems more concerned about crude oil
• Withdrawal limit will be normalized but gives no exact date
• Assure public that there will be continuous supply of currency
• No decision taken so far to re-introduce Rs.1000 notes
• There is adequate supply of notes, says RBI asking people not to hoard new currency; supplied Rs 4 lakh crore in new notes
• Next Credit Policy announcement on 8th Feb’17

Having said all this, it is a good decision on the part of the RBI to not have reduced the rates; that would have been a populistic move to make. If rates have been cut, it would have negatively impacted the bond rates and instead of easing, it would have put more pressure. A lower interest rate will encourage further outflows, which as such we have seen throughout November, both in bond and equity markets to the tune of $6 billion.

RBI has sent out the message that hit to growth rate is transient and RBI seems pretty confident about re-monetization. It has voiced concern about crude twice in the statement and going ahead, more than demand concerns, it is the supply side which one would need to watch out for.

All in all, this was a good, balanced policy and RBI sent out the message desperately we all needed to hear – the RBI remains autonomous and does not run at the behest of the PM! Some loss of faith restored for sure!