A fresh interest rate cut could come as early as next week, as the Reserve Bank of India has elbow room to help stalled projects get vital capital and also aid companies seeking cheaper credit.
Government sources, who did not wish to be identified, said government and monetary authorities would watch the inflation rate for one more week to be certain that these are definite signs of easing of the price line.
Inflation, which fell to 8.98 per cent for the week-ending November 1, slipped to single-digit levels after 21 weeks and hit high of 12.91 in August per cent.
Authorities, stung by the rising rubble of the credit crisis and worsening growth outlook, have infused over Rs 2,00,000 crore into the system through various measures.
The RBI has cut the cash reserve ratio — the proportion of money banks have to park with the central bank— by 3.5 percentage points to 5.5 per cent over the past two months, releasing about Rs 1,40,000 crore into the system.
The repo rate — the rate at which banks borrow from the RBI and used as a policy signal — has also been cut by 1.5 percentage points to 6.5 per cent.
Officials did not rule another 0.50 percentage point in the coming days to reduce borrowing costs for banks and industry. The finance ministry said the latest data points towards a general decline in prices, especially manufactured and fuel products.
Most banks have reduced their lending rates recently by about 0.75 percentage points (75 basis points)
“Given the increasing downside risks to the growth momentum coupled with tight liquidity conditions we expect RBI to cut CRR and repo rate by 50 basis points each in near future,” said Kaushal Sampat, chief operating officer of information service firm Dun and Bradstreet.