New Delhi: With the economy growing at a low pace of a little over 5% in October-December period, the lowest in any quarter, the Reserve Bank may now cut key rates to provide stimulus to the sagging demand as it need not immediately worry about inflation, experts said.
There is widespread speculation that the RBI would slash benchmark rates by 50 basis points by the end of March as inflation is easing week after week.
For the week ended 14 February, the inflation declined to 15-months low of 3.36%.
“We expect the RBI to cut the reverse repo and repo rates by 50 basis points each before end-March,” said Goldman Sachs economist Tushar Poddar.
Echoing similar view, Crisil principal economist D K Joshi, RBI could cut policy rates by 50 basis points in the near term.
Short term lending (repo) rate currently stands at 5.5% while short-term borrowing (reverse repo) rate is pegged at 4%.
Nomura economist Sonal Varma said, the central bank might cut both the repo and reverse repo rates by 50 basis points any time between now and the end of March, and by a further 100 basis points by mid-2009.
According to HDFC Bank economist Jyotinder Kaur RBI might act pretty soon and slash policy rates by 50 basis points each.
On the rate cut global financial services firm Citigroup also said that it expects an additional 100 to 150 basis points of easing by the Reserve Bank.
“With incremental macro data likely to remain weak, limited fiscal maneuverability and benign wholesale inflation, we maintain our view that the onus of stemming the deceleration in growth will remain on monetary policy,” it said in a report.
Commerce and industry minister Kamal Nath had said yesterday “I think now with inflation close to 3%, the RBI will and should look at more incisive methods to stimulate the economy which does include a cut in interest rates because its not mainly the question of liquidity there has to be increased lending.”
Replying to the interim Budget 2009-10 in Rajya Sabha, finance minister Pranab Mukherjee had said, “I am fully concerned that increased public spending may put pressure on government’s borrowing programme and overall credit offtake in the economy.”
“There is, however, scope for appropriate compensatory monetary policy options that I am sure will be exercised by the RBI at the right time.”
According to ICICI bank managing director K V Kamath “clearly there is a downward pressure on interest rates. There is further scope for rate cut.”
“In the near term, mortgage rates will come down to single digit... some of them already are”, he had said last week.