New Delhi: State Bank of India Chairman Pratip Chaudhuri Tuesday said that he expects the Reserve Bank of India to cut the cash reserve ratio by 100 basis points to inject liquidity in the banking system and boost the flagging economy, ahead of the central bank's mid-quarterly monetary policy review due next week.
"We expect the RBI to cut CRR by 1%... It will ease liquidity significantly and lower interest rate," Chaudhuri told reporters on the sidelines of an event.
Separately, Banking Secretary D K Mittal also said that state-run banks will welcome a 100 basis points cut in the CRR, or the portion of deposits that banks must keep with the central bank, by the RBI at the monetary policy review on June 18.
The market is expecting at least 25 basis points cut in the repo rate -- short term lending rate -- in the policy review, following Deputy Governor Subir Gokarn's comments recently on the central bank having room to cut rates.
Gokarn, who handles monetary policy, had said that the RBI may have more room for monetary easing as economic growth has slowed at a pace more than anticipated and that crude oil prices are falling, diverting from the RBI's earlier stance.
India's gross domestic product (GDP) grew at record nine-year low at 5.3% on-year in the March quarter, while Brent crude oil prices fell below $100 per barrel.
In the last fiscal 2011-12, the RBI cut the CRR by 125 basis points in two tranches injecting Rs 800 billion into the system to ease tight liquidity.
Further, in April, the RBI cut the repo rate by a higher-than-expected 50 basis points, for the first time in three years, to support India's faltering economic growth, but had warned that the central bank may have limited scope to cut rates further due to upside risks to inflation.
SBI, the country's largest lender, cut interest rates on car, education and small, medium enterprises (SMEs) loans and reduced deposit rates to pass on the benefit of the CRR and repo rate cuts.