RBI might slash CRR and Repo rate by 50 bps: D&B

Global consultancy firm Dun and Bradstreet expects the Reserve Bank to ease money supply further to spur economic activity in the wake of
slowing industrial growth.

"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," D&B said in its Economic Forecast.

The report added, the slew of measures taken by RBI, which include cut in reserve ratios and short term lending rate, Repo, have restored financial stability in the system.

"The recent cut in the policy rates have reduced the cost of borrowing for banks which they are likely to pass on to their customers in terms of lower PLR. This might provide some required impetus to the investment activity," D&B said.

The RBI has injected over Rs 2,60,000 crore through cuts in reserve ratio (CRR and SLR) and policy rate, prompting many banks to cut benchmark lending rates.

However, the current slump in exports and subdued domestic demand conditions coupled with credit crunch faced by the corporates will adversely impact industrial production in the near future, "We therefore expect IIP growth to moderate and remain close to 5.1 per cent during 2008-09," it said.

The latest IIP data showed that industrial growth rebounded to 4.8 per cent in September after a meagre 1.4 per cent in August, but many fear the growth would decline from October onwards.

It added the high input costs and the rising interest rates have adversely impacted the growth momentum during the first half of the current fiscal. Industrial growth declined to 4.94 per cent in the first half of this fiscal against 9.49 per cent a year ago.

Source: EconomicTimes