The Reserve Bank is expected to cut its policy rate by a minimum 0.25 per cent in its third quarter review on Tuesday as there are increased concerns over contracting industrial output and falling growth, bankers have said.
Oriental Bank of Commerce Chairman and Managing Director S L Bansal said, "We are expecting 25 basis points cut in repo rate and Cash Reserve Ratio by similar percentage points".
State Bank of India Chairman Pratip Chaudhuri, last week, said, "CRR cut is more important and repo rate cut, if it happens, will be very useful. 50 basis points (0.5 per cent) repo rate cut would be useful. CRR, I would request for a 50-100 basis points cut".
"Only then, the rate of interest environment can come down significantly," he added.
RBI in its last policy review had hinted at moderating its policy rate in the January policy to stimulate growth.
Earlier this week in Hong Kong, Finance Minister P Chidambaram had said RBI must strike a balance between needs of pushing growth and controlling inflation.
Inflation based on wholesale prices declined to a three- year low of 7.18 per cent in December. However, retail inflation rose for the third successive month in December to 10.56 per cent.
Industrial output contracted by 0.1 per cent in November. The economy grew by 5.4 per cent in April-September this fiscal, as against 7.3 per cent in the same period of 2011-12. It is estimated that the year-end GDP would be 5.7 per cent, a 10-year low.
ICICI Bank MD and CEO Chanda Kochhar, last week, also said that RBI may lower its benchmark interest rates in the coming months as inflation has eased, pursuant to which banks may also lower their rates to some extent to pass on the benefit to customers.
"With inflation easing, I think that we would see policy rate cuts in the coming months," Kochhar said.
According to Punjab National Bank CMD K R Kamath, banks would reduce interest rates if RBI cuts policy rates in the coming policy.
"If the rate of interest is reduced, probably the transmission will happen. Bankers have already been saying that transmission will happen if there is a rate cut," Kamath said.
"While inflation concerns remain, growth is a bigger concern ... So, while we understand the issues related to inflation at this point of time, it was our recommendation that there should be a rate cut so that growth comes first," HDFC Bank MD Aditya Puri said.
RBI had last reduced short-term lending (repo) rate in April, 2012 and stands at 8 per cent. In October, the RBI had reduced cash reserve ratio (CRR) -- the portion of deposits banks have to mandatorily park with the central bank -- by 25 basis points to 4.25 per cent.