That said, the MPC hinted about lurking inflation risks in the near to medium term.
Let us take the case of SBI. If it chooses to cut rates on Wednesday, this will be the first rate revision in 10 months.
Upside risks to inflation may however play the spoilsport. This augurs well for the domestic financial markets reinforcing the India growth story.
"Given the liquidity conditions prevailing and that we have reduced policy rates by substantial amount since start of easing cycle, I think there is scope for banks to reduce lending rate for those segments".
The revised repo rate is the lowest in six-and-a-half years since November 2010. It is the lack of transmission to this segment of borrowers (who now account for chunk of the loans) that has irked the RBI, and rightly so.
The government's chief economic adviser, Arvind Subramanian, and others call the projections too high, as efforts to curb food prices and low energy prices will keep inflation low for some time to come. Weak consumer spending followed by the demonetization late past year and lower food prices kept the inflation below 4 percent. The RBI may lower them but the various banks are in no position to transmit these rates as they are burdened by huge non-performing loan portfolios. The rate cut is the first by RBI since a similar cut in October 2016.
Why is the RBI obsessed with inflation?
Consequent to the change in the Repo rate, the Reverse Repo rate under the LAF stands adjusted to 5.75 per cent with immediate effect. The 5-1 voting in favor of a rate cut also suggests that the decision was nearly unanimous.
"A rate cut will give a push to credit growth, which has been sluggish from last many quarters", said R P Marathe, managing director, Bank of Maharashtra.Since January 2015, policy rates are already lowered by 175 bps, but the transmission has been less than desired. It also warned that it will continue to be vigilant in respect of inflation which was likely to rise from present levels.
The RBI's stance has its defenders, including IDFC Bank chief economist Indranil Pan who, like the central bank, believes inflation will accelerate in two months.
To some extent the rate cut was factored in money market, bond and gilt yields.