Bankers expect 25-50bps rate cut

Bankers and market players expect a 25 basis points (bps) cut in the Bank Rate to 6 per cent and a 50 bps phased reduction in the cash reserve ratio (CRR) to 4.25 per cent from the current level of 4.75 per cent in the monetary and credit policy review to be announced on April 29, 2003 by the RBI.

There are expectations of a realignment of bank rate to the market rate, as there has been a general decline in interest rates by 50-100 bps, since the last change in Bank Rate in the October 2002 Credit Policy. “This makes a strong case for a cut in the Bank Rate by at least 50 bps,” IDBI Capital said in a report on expectations from the Credit Policy, to be released on Tuesday.

However, RBI governor Bimal Jalan’s comment on April 21 that the inflation rate is expected to remain in the range of 5-5.50 per cent this fiscal has dampened expectations. But market players are still expecting a 25 bps cut. Given the easy liquidity situation over the last fiscal, mainly due to huge forex inflows, there could be a case for containing the inflows as there is a cost attached to it.

However, ICICI managing director and chief executive officer K.V. Kamath does not expect any further softening of interest rate in the near future. “I don’t see any reductions in rates,” Kamath said.