The monetary regulator, Reserve Bank of India, may not find enough reason to cut key policy rates in its upcoming Mid-Quarter Policy Review, but, banks and economists are urging the apex bank to do so in order to support the recent reforms introduced by the government.
Most experts are of the view that a reduction in cash reserve ratio (CRR) would help RBI to support liquidity in the system. In the previous mid-quarter policy review RBI had cut CRR by 25 bps, expecting tough liquidity situation in the economy due to the arrival of the festive season.
It is to be noted that recently Finance Minister P. Chidambaram had asserted that it was expected that RBI would take such monetary steps which would lower interest rates prevalent in the economy. Since April, RBI had maintained the policy rate or the repo rate at 8 percent.
Experts, such as the Chief Economist for India and Asean at HSBC, feel that it is expected that RBI may reduce key policy rates in order to support the government's reform measures. But, though the new measures make space for rate cuts, they would not be sufficient to trigger a series of rate cuts in the economy.