"Don't look at the monetary policy review as 25 bps (cut alone). Look at the composite of measures (marginal cost of funding-based lending rate methods effective April 1), they all add up. Borrowing rates are coming down significantly in the economy," Rajan told reporters.
    
He said a review of 26 large banks, accounting for 80 per cent of assets, has shown that overnight borrowing rates are down by 0.50 per cent while for up to a period of three years, the cut is at least 0.25 per cent.
    
"Policy action is significantly greater today than just another 0.25 per cent cut in the repo. Borrowing is now significantly cheaper and will continue to get so," he reiterated and sounded dovish that RBI will remain accommodative going forward if inflation remains under check.
    
He further said the slew of liquidity measures announced today will lead to a better transmission of the policy into actual lending rate cuts by the banks.
    
With the Monetary Policy Report, released along with the policy, estimating a push of 1-1.50 per cent in headline inflation numbers due to implementation of the 7th pay panel report, deputy governor Urijit Patel said a bulk of it is due to the steep rise in house rent allowances and RBI will "look through" such fanning. This upside risk will persist through the next 24 months or so.

The immediate impact on inflation is forecast if the report is implemented in the second half of the financial year, the report said, adding the pay panel report will boost the economy by around 40 basis points (rpt) basis points.
    
The report also noted that the overall impact will be lower than that of the sixth pay panel, as there is no arrears component in the current report.
    
Patel said the liquidity measures taken today are aimed at creating an enabling atmosphere to move to a working where the 14-day repo becomes the operational rate rather than the current overnight repo, as was suggested by a committee headed by him to be the second phase of reforms.
    
On the impact of inflation from rural boost, especially with the highest-ever budgetary allocation of over Rs 39,000 crore to the rural wage scheme, Rajan said we should not be very concerned as rural economy has been facing a difficult time due to successive droughts.
    
"Rural wages are still quite moderate. Even though rural inflation is higher than urban inflation, that is more because of some bottlenecks and some constraints in flows and logistics than because the rural areas are very buoyant. As of now, the fear that it might take off significantly is still relatively muted. Also, the rural demand is still anaemic," the Governor said.

Also read: RBI monetary policy review: Raghuram Rajan cuts key rate by 0.25 percent

 

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