With inflation under check and the Union government sticking to its fiscal consolidation path, market expectations are that Reserve Bank of India (RBI) may cut interest rate by up to 0.50 per cent in its first bi-monthly monetary policy review for 2016-17 on Tuesday (05 April) in order to propel growth.
The government has also pared the small savings interest rate by up to 1.3 per cent providing cushion to the Reserve Bank for cutting the policy rate.
Finance Minister Arun Jaitley too had last week expressed desire that the RBI should cut rate, stating "I want what everybody wants. At this stage if rate cuts do take place it's certainly going to be helpful because you need a more efficient economy and you need a more competitive cost of capital".
Bankers said high interest rate could make Indian economy sluggish given that inflation is around 5 per cent.
"There is possibility of RBI reducing rate by 0.25 per cent as inflation has eased," Bank of Maharashtra Chairman and Managing Director Sushil Muhnot told PTI.
According to a senior official from a state-run bank, although a 25 basis points has been factored in by the market there is also a high possibility of RBI going for a 50 basis points rate cut.
Citing various factors for easing of monetary stance, industry chambers are pitching for 0.5 per cent cut in the key interest rate.
A 0.25 per cent cut in the policy rate by the RBI is almost given, but the real impact of falling lending cost can be felt only if the central bank goes in for a bold reduction of at least 0.50 per cent, industry body Assocham said.
Retail inflation as measured by the Consumer Price Index (CPI) eased to 5.18 per cent in February as food prices rose at a slower pace, while Wholesale Price Index stayed in the negative territory for the 16th month in a row.
Industrial output for the third month in a row remained in the negative territory contracting 1.5 per cent in January due to poor showing of manufacturing sector raising industry clamour for rate cut by the RBI.
RBI Governor Raghuram Rajan on March 12 said government's sticking to fiscal consolidation roadmap of reducing deficit to 3.5 per cent of the GDP in 2016-17 was comforting, a statement which raised hope for rate cut in April 5 monetary policy.
(PTI)
