Reserve Bank may resort to a balancing act between curbing high liquidity and spurring growth in the monetary policy review on Tuesday, bankers feel.
Others feel that the apex bank would maintain status quo on both the short-term rates as well as Cash Reserve Ratio (CRR) and adopt a wait and watch stance.
However, with the US Federal Reserve slashing its rates by 0.75 per cent last week, some bankers feel the Reserve Bank might consider a 0.25-0.50 per cent cut in interest rates and a 0.25 per cent reduction in the CRR margin.
Following the Fed rate cut, the possibility of huge capital inflows into India has increased and the RBI might take steps to narrow the interest rate differential between the two countries, Indian Banks' Association's Chief Executive H N Sinor said.
"The RBI may send out a signal by reducing either the reverse repo or the repo rate by 0.25-0.50 per cent to moderate capital flows," Sinor said.
The repo and reverse repo rates currently stand at 7.75 per cent and 6 per cent respectively.
While a hike in key rates might temper capital inflows, a cut in CRR would release some capital which could be used by banks for increasing credit offtake and thereby spurring growth, which has slowed down in some sectors including manufacturing, textiles and consumer durables.
"High interest rates have hit growth in certain sectors. Whether the RBI does it this month-end or a little later remains to be seen," private sector Yes Bank chief Rana Kapoor told PTI.
Dena Bank Chairman PL Gairola feels that one could expect a 0.25-0.50 per cent cut in rates accompanied by a 0.25 per cent cut in CRR. The difference between the repo and reverse repo rates, is presently at 1.75 per cent, could also be narrowed, he said.
Two leading public sector bankers, MV Nair of Union Bank and T S Narayanasami of Bank of India, however, opined that the RBI is likely to maintain status-quo in interest rates this time. "Any change in interest rates is unlikely in the policy this time," Nair said.
"Global markets are still volatile and so is the domestic market. I feel a status quo will continue in the medium-term," Narayanasami said.
He, however, felt that a 0.25 per cent increase in CRR was a possibility given the continuing inflows into the domestic system.
IBA's Sinor had said last week after a meeting with RBI Deputy Governor Rakesh Mohan that the apex bank still feels that there was excess liquidity in the system.
Inflation, which has risen to 3.83 per cent for the week ended January 12, though well within the apex bank's comfort zone, will still continue to be on its radar. Inflation has shown an upward trend, rising to 3.79 per cent in the week ended January 5 from 3.50 per cent to 3.83 per cent now.
"Globally, fuel prices are high and food prices firming up and hence, inflation control will continue to be a focus area, Dr Rupa Rege Nitsure Chief Economist Bank of Baroda said.