The Reserve Bank of India (RBI) may cut interest rate by about 0.25 percentage points and release more liquidity in its annual credit policy tomorrow in the light of sagging factory output and a moderation in economic growth, say bankers.
"My personal stance is that cut CRR...I would expect 75-basis-point cut in CRR," SBI Chairman Pratip Chaudhuri said.
Last month, RBI slashed CRR (cash reserve ratio) — the percentage of deposits that banks have to keep with RBI — from 5.5 per cent to 4.75 per cent. With this, the central bank had infused Rs 48,000 crore into the economy.
Indian Overseas Bank Chairman and Managing Director M Narendra said, "Given the microeconomic condition, there is expectation that RBI would cut both repo and CRR by 25 basis points (0.25 per cent)".
Showing persistent sluggishness in the economy, industrial production growth slowed to 4.1 per cent in February this year, mainly due to poor performance of the manufacturing sector and consumer goods segment.
At the same time, inflation has been hovering around seven per cent and global crude oil prices are still more than $100 per barrel, adding to inflationary pressures. The inflation was 6.89 per cent in March much above the RBI's comfort level.
RBI, which increased the key policy rate 13 times between March 2010 and October 2011 to tame inflation, did not hike the repo rate (short-term lending rate) in the last three policy reviews. On the other hand, India's GDP grew by the slowest pace in the last three years to just 6.1 per cent in the third quarter of 2011-12.
