RBI policy stance was highlighted in the Statement on Development and Regulation of Policies, not in the Monetary Policy statement. The significant announcements in statement on development and regulation of policies are the scrapping of maintaining system liquidity at around 1% +/- NDTL and the introduction of Long Term Repo Operations (LTRO).
On the policy front, RBI has given itself more room to cut rates with inflation projected at 3.2% for q3fy21 and with GDP growth forecast at 5.5% to 6%, which is lower than government projection of 6%-6.5%. Coronavirus impact is also being factored in the accommodative stance.
The bond markets are looking at huge surplus liquidity at current or lower repo rates. Banks can also bid for LTRO, which is an ECB concept where ECB lent trillions of Euros to banks to improve credit flows, for 1 year and 3 year auctions at repo rates. Cheap long term funding from RBI can help banks lock on to higher yielding assets for arbitrage.
The decision to allow banks to deduct loans to automobiles, residential housing and SMEs, micro enterprises from NDTL will lower the cost of funds for banks on these loans as they have to maintain less CRR and SLR.
The policy is focused on giving banks cheap money, ensuring long term and unlimited availability to make banks lend more and improve economic growth. This has been the policy of the Fed and ECB and RBI is now adopting the same policy. RBI had conducted Operation Twist, which is a Fed policy tool, to keep down bond yields at the longer end.
Bond markets are likely to see a search of yields given easy availability of cheap money. INR could appreciate if FIIs pump in money into bonds on easy money outlook.
Equities could gain if the coronavirus impact is not seen as severe but if that acts up further, risk aversion could move the markets.