It has recently been revealed by the bankers that the Reserve Bank of India (RBI) is likely to cut the lending rate for the banks in the scene where inflation is declining even below the RBI’s comfort levels. It would even reduce the amount the banks need to keep with it anytime from now to support the demand.

Ashish Parthasarathy, deputy head of treasury, HDFC Bank, said, “A 0.5-1 per cent cut in the reverse repo rate — the rate at which  the RBI borrows money from banks — could be expected anytime now following the sharp decline in inflation numbers. This would be needed to support the falling demand in different sectors owing to the global economic slow down.”

In 2008, the key rates were revised several times by the RBI with the aim to balance the liquidity conditions in the system, besides supporting the economic growth momentum.

Besides cutting the repo (the rate at which banks borrow from the RBI), reverse repo rates to 6.5 per cent and 5 per cent, respectively, RBI also slashed the cash reserve ratio (CRR) — the percentage of deposits banks need to park with the RBI — by 3.5 per cent to 5.5 per cent from 9 per cent.

“The RBI is expected to reduce its key rates by 0.5-1 per cent in the near future in view of the slow down in different sectors,” reported KC Kalia, executive director, Vijaya Bank.