Pressure mounts on RBI to cut rate to boost growth

Chidambaram hopeful RBI would address liquidity issues; SBI chairman calls for a 0.5% interest rate cut

With moderation in economy and core inflation, pressure is mounting on Reserve Bank to cut interest rate by up to 0.50% and address liquidity concerns to boost growth.

While the Finance Minister P Chidambaram expressed hope that RBI would address liquidity issues at its mid-quarterly review tomorrow, SBI Chairman Pratip Chaudhuri said a 0.50% interest rate cut is needed.

"I think Governor is also aware of the issues about liquidity and tomorrow is the monetary policy. I am sure he will address the issue of liquidity," Chidambaram said after meeting the chiefs of PSU banks here.

The Minister said many PSU banks are having SLR in excess of statutory requirement of 23% and earning interest on them rather than lending to corporates.

Chaudhuri said, "We have requested 50 basis points in CRR and 0.50% cut in repo. We have also requested to increase the export credit refinance, which is currently 50% of the rupee credit. We have requested them to increase it to 100%".

Reflecting tight liquidity situation, banks today borrowed Rs 1.42 lakh crore from RBI under the repo window.

"SBI liquidity is comfortable. We are sitting currently on Rs 30,000-40,000 crore and the government is also disbursing capital. So that improves liquidity," Chaudhuri said.

Core or manufactured inflation came down to 3.8% in February, the lowest in 35 months. However, overall WPI inflation remained high at 6.84% on mainly on account of high food prices.

While the January factory output numbers have showed signs of improvement, growing at 2.64%, the economy is estimated to have grown at a decade low of 5% in the current fiscal.