RBI likely to maintain status quo tomorrow

The Reserve Bank of India is likely to keep policy rates unchanged in the third quarterly review of monetary policy on Tuesday, even as inflation and economic growth rate have eased, say bankers.

"I don't see moderation in the interest rate (in the upcoming policy review).

"As for cash reserve ratio cut, I am not hopeful," SBI chairman Pratip Chaudhuri said.

"I think there would be strong measures to indicate that RBI wants inflation to be stamped out totally," he said.

Headline inflation fell to a two-year low of 7.47 per cent in December, 2011.

Food inflation stood at (-)0.42 per cent as of January 7.

On the other hand, in the July-September the economy grew by 6.9 per cent -- the lowest level in over two years.

Indian Overseas Bank chairman-cum-managing director M Narendra also said the central bank is likely to keep policy rates unchanged for a while.

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There is a little possibility of changing the CRR in the coming policy review, Narendra added.

At present, CRR, the portion of deposits which commercial banks keep with the central bank, stands at 6 per cent.

Canara Bank chairman and managing director S Raman said that there was some possibility of RBI slashing CRR by 25 basis points to infuse liquidity in the light of moderation in industrial activity.

Kotak Mahindra Bank managing director Uday Kotak said: "Domestic liquidity is tight as you can see at numbers. . . at the most the market can hope something on CRR to correct the domestic liquidity situation".

Banks are drawing over Rs 1,00,000 crore (Rs 1,000 billion) from the repo window everyday, even though RBI is carrying on Open Market Operation on weekly basis to ease liquidity pressure.

It is to be noted that in its last review in December, the RBI pressed the pause button on its monetary tightening measures and said it might go for rate cuts in the future depending on moderation in inflation.

"From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth," RBI Governor Subbarao had said in the last policy review.

The central bank had hiked interest rates by 375 basis points between March, 2010 and October, 2011 to deal with the persistently high inflation, including rising prices of food items.

The government has already revised the GDP growth forecast downwards for the current fiscal.

GDP is expected to clock a growth rate of about 7 per cent against 9 per cent projected earlier.