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Bankers, analysts pin hopes on CRR cut

Bankers and money market analysts in Bombay are confident that the Reserve Bank of India Governor Bimal Jalan is likely to announce a cut in cash reserve ratio, while unveiling the mid-year review of the monetary policy on October 22.

They argue that a cut is warranted as the current trend in non-government credit and central government's borrowing programme is likely to continue during the busy credit season.

According to S S Kohali, chairman, Punjab National Bank, the RBI may announce a cut in CRR and lower interest rates on export finance in its mid-term review of monetary policy.

Taking a step further, analysts at the ICICI securities debt market, said RBI may announce a 50 basis point reduction in the CRR.

According to them, gilts market is waiting anxiously for RBI's mid-term review of monetary policy. At present, there is a widespread expectation that the central bank will lower the benchmark bank rate as well as CRR.

Chanda Kochhar, executive director ICICI Bank, hopes that RBI will consider a reduction in interest rates in line with the lower interest regime adopted by the central banks of major world economies.

Analysts have projected a 2.03 per cent to 4.8 per cent rise in money multiplier if CRR is brought down to 7 per cent from the present 7.5 per cent level. This could trigger a broad money expansion of around Rs 70.5 billion in the busy season.

They expect that the central bank will effect a 50 basis point reduction in the CRR on October 22, with a further 50 basis point cut contingent on the strength of credit off-take in the third and fourth quarters.

Although analysts were sure of a CRR cut by RBI in the credit policy, doubts were raised simultaneously within the market circles as to whether the RBI governor would break the tradition of not using the tools like CRR, benchmark bank rate cut in the monetary policy.

There are also talks of downward revision of GDP growth projections by RBI in view of a general slowdown in economy and the September 11 terrorist attacks on the United States.

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