In view of high inflation and deficient monsoon rainfall, the Reserve Bank may find it difficult to cut the key lending rate to boost the economy as is being demanded by the industry.
Although bankers expect RBI to cut the Cash Reserve Ratio (CRR) by up to 0.50 per cent in the monetary policy review tomorrow, it would not be possible for the central bank to heed to India Inc's demand as inflation, at over 7 per cent, is much above its comfort level.
Moreover, uncertainty over monsoon is likely to put pressure on prices of essential commodities. On an average, rainfall deficiency across the country is 21 per cent so far.
RBI Governor D Subbarao will unveil the first quarter policy review and if his recent comments on inflation as well as fiscal and current account deficit numbers are any indication, it may turn out to be a non-event.
While GDP growth hit a nine-year low last fiscal at 6.5 per cent, WPI-based inflation was at 7.25 per cent in June. Retail inflation is hovering at 10.02 per cent.
RBI had left policy rates and CRR -- a portion of deposits that banks are required to keep with the central bank -- unchanged at the last meeting on June 16.
Meanwhile,
Bankers, meanwhile, have said that they expect a 0.5 per cent reduction in CRR, which currently stands at 4.75 per cent. They, however, do not see a reduction in the repo rate from the current 8 per cent.
"We expect a 50 basis point reduction in CRR to ease money supply. Also a CRR cut will have a cooling effect on the interest rates for customers apart from better effect on monetary transmission than a repo cut," State Bank of India Chairman Pratip Chaudhuri said.
Yes Bank Managing Director Rana Kapoor said, "I think the chances of repo rate cut happening are less as inflation has taken a pole position in RBI's thinking again."
Chairmen of Central Bank and Union Bank, M V Tanksale and D Sarkar, however, held the view that RBI could go in for cut in CRR to unlock funds and ease the liquidity situation.
RBI had said in its previous policy review that any further action on the monetary policy front would depend on
government's fiscal consolidation initiatives.
However, with four months of the fiscal already over the government has yet to announce roadmap to contain the subsidy bill.
