Pressure is mounting on the Reserve Bank of India, both by industry and banks, to cut policy interest rate as well as cash reserve ratio on Monday to boost sagging industrial growth.
The clamouring for a cut in interest rate and cash reserveratio (CRR) has increased in view of declining inflation andthe need to arrest fall in industrial production.
However, experts say the declining value of rupee may constraint the Reserve Bank to take bold measures in its mid-quarter monetary policy review scheduled on June 17.
SBI chairman Pratip Chaudhuri made a case for a cut in CRR -- the amount of deposits which banks are required to keep with Reserve Bank in cash -- saying it wouldgive more leeway to banks to provide cheaper credit to borrowers.
"A 25 basis points (0.25 per cent) cut in repo rate willgive an additional income of Rs 50 crore. How do I distributeit? (SBI has a loan book of Rs 7 lakh crore). If you reducethe CRR by 25 bps, I get about Rs 3,000 crore. If there is aCRR cut, then the transmission is more pronounced," he said.
Industry body Assocham said most of the risk factorsflagged by the RBI in its annual monetary policy havesignificantly receded "leaving a lot more headroom for the central bank to go in for further cut in the key policy interest rates".
In its annual monetary policy on May 3, the RBI hadslashed repo rate (short-term lending rate) by 0.25 per cent,but had kept the CRR unchanged at 4 per cent. Inflation, a main worry of the central bank, fell to a43 months low of 4.7 per cent in May.