The Reserve Bank of India cut the repo rate by 25 bps, from 6 percent to 5.75 percent.
Here are the key takeaways from the RBI credit policy announced on June 6.
The panel of forecasters say inflation will be higher
The monetary policy committee has maintained a stance of calibrated tightening so far
Finance Minister Arun Jaitley said India can't have a real rate of interest that's higher than anywhere else in the world
The Nikkei Purchasing Managers’ index for November shows a buoyant Indian economy
This is the first policy after the rift between the Reserve Bank of India and government came to light and the tone and measures will be the first sign of who is ceding ground.
In any case, these factors and a growth slowdown, especially as rural distress deepens, should prompt the rate setting committee to reverse the monetary policy stance to neutral from the current mode of 'calibrated tightening
While improving external demand conditions will support economy, significant global political risks remain, the RBI Monetary Policy Committee said.
Actually the withdrawal of legal tender characteristic does not extinguish any of the RBI's balance sheets, and therefore is no implication on the balance sheet as of now, Patel said at a media briefing post the credit policy
The central bank sees near term downside risks travelling through two major channels: (a) disruptions in economic activity in cash-intensive sectors such as retail trade, hotels & restaurants and transportation, and in the unorganised sector; (b) contraction in aggregate demand because of the 'wealth effect'.
Reserve Bank Governor Raghuram Rajan kept key rates unchanged at his last policy review before he bids adieu early September.
Rajat Bose of rajatkbose.com is of the view that SBI may test Rs 160 while Bank of Baroda may hit Rs 110-111.
Leading indicators of services sector activity are emitting mixed signals.Slowdown in tourist arrivals, railway traffic and international air passenger and freight traffic could affect hotels, restaurants and transport firms
A CNBC-TV18 poll showed that 70 percent of the bankers, bond dealers and economists expect a 25 basis-point repo rate cut while SLR and CRR rates are expected to be kept unchanged.
CARE Ratings expects RBI to reduce the repo rate by 25 bps in the post budget policy, provided the inflation numbers for January have moved in downward direction. Based on ceteris paribus conditions we still expect rates to be cut by another 75 bps this calendar year, says the report.
Global cues, meanwhile, are positive with the US markets rallying with the Dow rising 200 points on encouraging news from the eurozone and stronger oil prices.
The broader markets outperformed benchmarks with the BSE Midcap and Smallcap indices rising 0.6 percent and 1.1 percent, respectively.
R Venkatraman, MD, IIFL believes that weak earnings were already factored in by the market and expects 2015 also to be a good year as 2014 but says one should not expect 30-40 percent returns.
Bajaj Auto, Mahindra & Mahindra, HDFC Bank, Gail India, Infosys, BPCL, DLF and Asian Paints were under pressure in early trade, down 0.7-2 percent.
According to Bank of America Merrill Lynch, the RBI is likely to cut policy rates by 75-100bp starting early 2015 even if Fed chair Janet Yellen hikes from September 2015.
Since being appointed governor in September, Raghuram Rajan had embarked on a series of rate hikes to tame soaring prices -- cementing the central bank's hawkish stance.
In an interview to CNBC-TV18, Samiran Chakrabarty, head of research of Standard Chartered Bank spoke about his reading of the current economic environment in the country and his outlook.
In an interview to CNBC-TV18, Ananth Narayan of Standard Chartered Bank gave his outlook on the economy and the currency market.