Policy had a cautious tone highlighting inflation risks due to unfavorable base effect and rise in crude and commodity prices

Mumbai (GPN) : The decision to keep policy rates unchanged took the markets by surprise as a 25 bps cut was the consensus view. Risk to inflation trajectory was the major reason for a pause since base effect for CPI would be unfavourable from December onwards. The tone of the policy is a bit hawkish. RBI decision to withdraw CRR on incremental deposits is a welcome move. MSS bonds worth Rs.6 Lakh Crore would ensure orderly liquidity management and is in line with liquidity neutral stance. Bond market, obviously, reacted negatively post policy with the benchmark 10 year paper rising 15-20 bps. However, inadequate deployment avenues would lead to range bound movement in yields. Overall, the policy had a cautious tone highlighting inflation risks due to unfavorable base effect and rise in crude and commodity prices.