New Delhi: The Reserve Bank will unveil tomorrow its credit policy for the current fiscal amidst both the government and the industry expecting it to cut interest rates for revival of consumer demand that saw erosion due to high cost of borrowing for the last two years.
With the inflation easing marginally below seven percent and bulk of food prices still remaining high, RBI Governor D Subbarao faces a difficult choice to strike a balance between the economic growth and price rise.
Moreover, with the government's inability to pass on the increase in the crude oil prices, economists feel there is a suppressed inflation which the central has to take note of.
While the RBI increased the policy rate 13 times between March 2010 and October 2011 to tame inflation, it did not hike the short-term lending rate in the last three reviews.
Economists and bankers feel that in the backdrop of steep fall in industrial growth, the RBI would go in for at least 0.25 percent reduction in the short-term lending rate, also known as the Repo rate.
Industry is clamouring for bigger cuts. The Index of Industrial Production (IIP) for February had dropped sharply to 4.1 percent from 6.7 percent a year ago.
Finance Minister Pranab Mukherjee had said "these (IIP) figures will have bearing on monetary policy announcement. The government along with RBI will take required steps to revive activity in the economy."
Under these circumstances, the government, bankers and economists expect RBI to use the monetary tools to revive the demand by reducing the interest burden on the borrowers.