India’s central bank is expected to keep interest rates on hold Tuesday, despite mounting pressure from bankers and industry for a cut to revive the flagging economy.
The Reserve Bank of India has kept rates steady since April -- when it cut them for the first time in three years -- saying inflation must fall and the ballooning fiscal deficit needs to be curbed before it eases borrowing costs.
Some analysts say the RBI could, however, lower by a quarter point the cash reserve ratio -- the percentage of deposits banks must keep with the central bank -- in a move aimed at boosting liquidity and spurring lending.
India’s once-booming economy has slowed sharply due to high interest rates, global economic woes and sluggish investment caused by domestic and overseas concerns about Indian policy-making and corruption.
The finance ministry on Monday cut its growth forecast for this fiscal year to 5.7-5.9 per cent, down from 7.85 per cent estimated at the start of the year, putting India on track for its worst annual performance in a decade.
“The lending rate cuts will start in the first quarter of 2013,” said Siddhartha Sanyal, chief India economist at Barclays Capital, adding the central bank could reduce the cash reserve ratio by 25 basis points on Tuesday.
The RBI is likely to wait until January before cutting rates, which could fall by as much as 100 basis points by mid-2013, Sanyal said.