“While debt and equity markets have reacted negatively to the policy statement as they had already factored a rate cut, the withdrawal of the additional CRR on banks with effect from the next fortnight, does provide some room to banks to cut lending rates. Moreover, with the RBI maintaining a neutral liquidity stance, the phased issuance of securities under the MSS would absorb the excess liquidity, while allowing the banks to earn interest on such deployments. The adequate systemic liquidity will ensure that rates remain soft though higher than the levels sees two weeks back and help banks book sizeable treasury gains in the current quarter to support their profitability matrices.”
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