RBI may cut CRR, repo by 0.25% in upcoming policy: bankers

Amidst sagging factory output and moderation in economic growth, the Reserve Bank could cut interest rate by about 0.25 per cent and release more liquidity to stimulate economic growth in its annual credit policy on Tuesday.

"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 the 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 the RBI would cut both repo and CRR by 25 basis points". One basis point is equal to one hundredth of one 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 manufacturing sector and consumer goods segment.

At the same time, inflation has been hovering around 7 per cent and global crude oil prices are still over $100 per barrel, putting pressure on inflationary expectations.

Inflation rose to 6.95 per cent in February, 2012, from 6.55 per cent in January. The 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.

Since October 2011, the repo or the short-term lending rate of the RBI stands at 8.5 per cent. Repo rate is the signalling rate. Other policy rates like reverse repo and bank rate adjust automatically with change in the repo rate.

On the possibility of repo rate reduction by the RBI, Chaudhuri said, "I am not too hopeful and frankly I don't think this is material".

According to Bank of Baroda Chairman and Managing Director M D Mallya, "we saw last year that growth was not very substantial. We have seen the overall interest rate scenario reigning high. So, perhaps some policy measures are required to ensure growth is also catered to without compromising on inflation." Mallya said overall liquidity is likely to improve after Government spending starts.

Hit by tight liquidity conditions, banks are still borrowing on an average about Rs 80,000 crore from the central bank everyday.

Echoing similar views, Punjab National Bank Chairman and Managing Director K R Kamath said on the one hand there is an issue of inflation and on the other economic growth is moderating.

"So, I find its difficult task for the governor to select between the the growth and inflation," Kamath said.

Punjab & Sind Bank Executive Director P K Anand said "there could be some token cut by RBI to prop up growth. It could be about 25 basis points".