Devendra Kumar Pant, Director at Fitch Ratings, said that as inflation has been controlled to a certain extent, priority has shifted to giving boost to economic growth. The policy stance was to provide greater liquidity cushion to the financial system.
"Today's 50 bps cut in repo rate is a step in this direction. RBI has said that the scope for future cut is limited; this would largely depend on how inflation and growth scenario pans out in 2012-13," Pant added.
He said that the adverse shock from commodity price is low. The chances of inflation going up due to commodity prices are not high.
"Core inflation measured by non-food manufactured products in March 2012 declined to 4.7 percent. Although higher than RBI's comfort level of four percent, it is significantly lower than 8.4 percent in November 2011," he said.
Terming the reduction in repo rate as a welcome surprise, Dinesh Thakkar, Chairman and Managing Director of Angel Broking, said: "The decline in average inflation levels by more than 150 bps (basis points) compared to the levels prevailing during most of FY11 and FY12 was clearly creating headroom for interest rates to come down and the RBI's move mirrors these macro conditions."
According to him, the bank's lending and deposit rates would inch down by 50 basis points in the coming months as lower inflation enables higher financial savings.