NEW DELHI: Raghuram Rajan's surprise for a generous rate cut in the September policy has weakened the prospects of another cut anytime soon.
It comes as little surprise after Rajan's warning last quarter of RBI "front-loading" the cut. “The coming Pay Commission report could add substantial fiscal stimulus to domestic demand, but the government has reaffirmed its desire to respect its fiscal targets and improve the quality of its spending,” said Rajan.
“Under these circumstances the Reserve Bank intends to be accommodative to the extent possible given its inflation goals while recognizing that continuing government policy implementation, structural reforms and corporate actions leading to higher productivity will be the primary impetus for sustainable growth,” he added.
Rajan said that therefore the Reserve Bank has frontloaded policy action by a reduction in the policy rate by 50 basis points.