RBI policy review: Raghuram Rajan faces calls to pull the trigger

New Delhi: The Reserve Bank will unveil its first bi-monthly policy review for this fiscal Tuesday amid expectations of a 0.25-0.50 percent cut in interest rates to boost industrial growth and economy.

Finance Minister Arun Jaitley earlier in the day pitched for policy easing, saying high rates could lead to a sluggish economy.

Bankers and experts too are expecting lower borrowing costs as the inflation trajectory is down and the government has pledged to stay on the fiscal consolidation path.

Keen to show that it means business, the government has pared the small savings interest rate by up to 1.3 percent, providing cushion to the Reserve Bank for lowering the policy rate and for banks to pass on its benefits to consumers.

Bank of Maharashtra CMD Sushil Muhnot said: "There is possibility of RBI reducing rate by 0.25 percent as inflation has eased."

According to a senior official from a state-owned bank, although a 0.25 percent rate cut has been factored in by the market, there is also a high possibility of RBI slashing it by 0.50 percent.

Jaitley said: "The government has stuck to fiscal deficit commitments and inflation has been under control. I do hope that this movement will continue in order to make our economy more competitive with more competitive interest rates."

Industry chambers on their part are pitching for 0.5 percent reduction in the key interest rate.

"A 0.25 percent cut in the policy rate is almost given, but the real impact of falling lending cost can be felt only if the central bank goes in for a bold reduction of at least 0.50 percent," industry body Assocham said.

Retail inflation as measured by the consumer price index eased to 5.18 percent in February as food prices rose at a slower pace while the wholesale price index stayed in the negative territory for the 16th month in a row.

RBI Governor Raghuram Rajan had last month said the government sticking to the fiscal consolidation road map in Budget was comforting, a statement which raised hopes for a rate cut in April 5 monetary policy.

RBI, in 2015, had lowered interest rates by 1.25 percent.