RBI unlikely to cut key rates tomorrow: Bankers

After having already cut cash reserve ratio by 0.75 percentage points last week, bankers feel the Reserve Bank may not do much, especially with regard to reducing the interest rate, in its mid-quarterly review of monetary policy on Thursday.

The possibility of key policy rate cut is not bright as industrial output grew by 6.8 per cent in January against just 2.5 per cent in the previous month.

Even inflation has firmed up to 6.95 per cent in February from 6.55 per cent in January. Besides, the rising crude oil prices to $125 a barrel indicates towards latent inflation.

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"I don't think that RBI would take further action in the policy review (on March 15)," State Bank of India chairman Pratip Chaudhuri said.

Last week, 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 (Rs 480 billion) into the economy.

This is the second reduction in the CRR since the January 24 policy announcement, when it had slashed CRR by 50 basis points releasing Rs 32,000 crore (Rs 320 billion) into the system.

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Repo or the short term lending rate of the RBI stands at 8.5 per cent. Repo rate is the singnalling rate.

Other policy rates like reverse repo and bank rate adjust automatically with change in the repo rate.

Echoing similar views, Central Bank of India chairman and managing director M V Tanksale said the central bank will probably keep the monetary instruments untouched in the mid-quarter review.

However, some bankers feel that it is time for RBI to cut policy rate so that growth can be propped up which is on the path of moderation.

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"There is immediate need for RBI to shift into aggressive growth supportive stance to address issues arising from fiscal and trade deficit. The need therefore is for RBI to turn its focus away from CRR cuts to trigger rate cut actions," IndusInd Bank head (ALCO and economic & market research) Moses Harding said.

The expectation from market stake holders is unanimous but opinions are different on its timing; whether on March 15 or end of April 2012.

If the decision is to deliver rate cut; it is better to deliver it soon to cut short the lag time of transmission, he said.