RBI may cut key lending rates by 25 basis points

Mumbai, April 16 (IANS) India's central bank is expected to cut key lending rates by about 0.25 percent or 25 basis points, thereby releasing more funds in the economy, in its annual credit policy for 2012-13 on Tuesday.

The speculation is strongly supported by investors, markets and bankers who feel that the move can put life back into the economy which has been marred with low factory output and moderation in consumption.

Earlier in March, the Reserve Bank of India (RBI) had slashed the cash reserve ratio (CRR) which is a key percentage that determines the deposits a bank needs to hold with the RBI.

The rate was cut from 5.5 percent to 4.75 percent so as to allow an infusion of Rs.48,000 crore into the economy.

The main reason cited by the industry for the RBI to cut rates is the sluggishness with which the industrial production grew in February to just about 4.1 percent. Manufacturing and consumer goods segments were the most hard hit.

The impact of a liquidity crunch has also impacted the country's GDP (gross domestic product), which grew at its slowest pace in the last three years at 6.1 percent in the third quarter of 2011-12.

At the same time, inflation numbers that came in Monday showed a marginal sobering affect at 6.89 percent in March as compared to 6.95 percent in the previous month.

To tame inflation, the central bank had increased the key lending rates 13 times from March 2010 to October 2011.

There was good buying support in interest rates sensitive banking stocks on expectations of rate cuts. The country's largest lender State Bank of India was ruling 1.41 percent higher at Rs.2,242.60 around 2.00 p.m.

The BSE banking index was trading 60.46 points higher at 11,944.67. Consumer goods too came out with healthy performance with a rise of about 78.26 points at 9,978.71.