Interest rates can further go down by as much as one percentage point in the New Year.
The central government has reportedly convinced the Reserve Bank of India (RBI) to further reduce cash reserve ratio (CRR) rates, repo and reverse repo rates to help banks reduce interest rates. An announcement is expected in the second economic stimulus to be announced this week.
Senior government officials, on condition of anonymity, said differences between Planning Commission deputy chairperson Montek Singh Ahluwalia and RBI governor D Subba Rao on reduction in rates was sorted out at a meeting in the PMO on Monday.
With this, the RBI is expected to reduce the CRR by about 100 basis points to infuse Rs 40,000 crore liquidity in the market. Repo rate and reverse repo rates may be reduced by 50 basis points, a senior government official said.
The second economic stimulus package, which is expected to have some more concessions for the automobile and manufacturing sector, is aimed at making the economy look positive by March 15, the period when the model code of conduct will come into force for general elections in April-May 2008, the official said.
The Election Commission has already ruled out a possibility of early Lok Sabha polls. The new Lok Sabha is to be constituted by May 21.
But, thanks to elections this year, there would be more concessions in offering in the next two months.
A senior government official, not willing to be quoted, said a slew of economic measures including a Rs 400 crore subsidy on prices of cereals and a cut in petroleum prices will be announced to ensure that inflation falls below four per cent by mid-March. At present inflation is at 6.62 percent.