Mumbai: A day after the RBI decided to go for a widely-expected status quo in rates, analysts today said another cut is not on the horizon, but getting liquidity to neutral levels will dominate actions going forward.


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With the Reserve Bank commentary stressing on all options being open, a section also felt that an increase in cash reserve ratio (CRR) may be in the offing.

"The key message from the RBIs monetary policy meeting was that it was committed to adhere to its stance of neutrality on liquidity and moved towards correcting distortions in interest rates," HDFC Bank's research team said in a note.


Singaporean bank DBS said moving liquidity back to neutral "will be priority" for the RBI.


Japanese brokerage Nomura said there can be a one percentage point cut in the cash reserve ratio (CRR) which is the amount of deposits parked with the central bank in the second half of 2017 to tackle the liquidity glut.


A bulk of the focus in the commentary was on the liquidity, including a plan to bring it to neutral as per a process which started last year and also how to manage the current excess liquidity of over Rs 4 trillion.


The RBI has made a pitch for the special deposit facility (SDF) to suck out the excess liquidity and is in talks with the Government to introduce it.


However, on the crucial question on the way forward, the view was divided among the analysts with many saying that we should not expect any cuts while some expressing some optimism.


Analysts at Bank of America Merill Lynch said while the RBI will pause at the June review, it will deliver a 0.25 percent cut in the key lending rate in the August policy statement.


"We do not expect any more rate cuts given the journey to 4 percent inflation remains challenging," its chief economist Pranjul Bhandari said, adding that the weak growth will ensure that the RBI does not hike rates.


In the policy statement yesterday, the Monetary Policy Committee reviewed its inflation targets upwards to 4.5 percent average for first half of the fiscal 2017-18 and expects it to go up to 5 percent in the second half.


"We continue to expect the RBI MPC to cut rates by 0.25 percent on August 2, given weak growth, soft inflation and the need to recoup forex reserves by attracting FPI equity flows by supporting growth if rains are good," BofAML said.


"With RBI remaining relatively hawkish on the inflation trajectory, we expect RBI to stay on a longish pause," IDFC Bank's chief economist Indranil Pan said.