Interest rate cut inevitable, the quantum is debatable: bankers

The industry is expecting a slash in interest rates, terming it as inevitable, in the Reserve Bank of India's (RBI) mid-term credit policy review on Monday, with bankers and economists having divergent views on the quantum of rate cut.

A number of analysts and brokerages were expecting the central bank to cut rates by at least a quarter percentage to half a percentage.

Some of them were expecting RBI to reduce key policy rates - repo and reverse repo - by at least 25 basis points, while most of them were not expecting a cut in cash reserve ratio.

Repo is the rate at which RBI lends to banks, reverse repo is the rate at which it borrows from banks and CRR is the percentage of total deposits banks have to keep with the central bank.

The State Bank of India, the country's largest bank, is expecting a CRR cut of about 1 per cent, its chairman Pratip Chaudhuri said. Also, HDFC Bank managing director Aditya Puri also voiced his opinion that the CRR should be cut. Other leading Banking personnel had similar opinion.

''If the RBI is serious about supporting growth, then policy rates will have to be cut much more for the same level of policy transmission to occur… Additionally, if the RBI is serious about lowering the cost of funding and supporting growth, then it will have to deliver more repo rate cuts to ensure the same level of policy transmission,'' according
to a report by research firm Nomura.