The Reserve Bank of India (RBI) that is going to unveil its annual monetary policy in a meeting to be held on Tuesday, April 21st is expected to keep the policy rates unchanged, as per the most bankers.

However a preview report by Goldman Sachs suggests that RBI may not cut reverse repo rate but may reduce repo rate by 50 basis points.

Vice President - Asia Economics Research at Goldman Sachs, Tushar Poddar said, "We think the RBI is unlikely to cut the reverse repo rate, which is currently the effective short-term policy rate, on April 21. There are several reasons for this. First, there is significant excess liquidity in the system. In the fortnight ended April 17, banks deposited in excess of $23 billion per day on average into the reverse repo window, compared to $7 billion a fortnight earlier.

Second, banks have still not passed through previous policy rate cuts, as spreads between benchmark policy rates and deposit and lending rates are at historic highs. Therefore, we think the RBI will likely cap the amount banks can put in the reverse repo window to incentivise a reduction in deposit rates and/or greater lending by banks, before cutting the reverse repo rate further."

"Third, although there is little near-term danger of inflation, and the emphasis is on boosting activity, the large fiscal borrowing requirement suggests the focus of the RBI will move towards monetizing the deficit," added Poddar.

Development Bank of Singapore (DBS) also said that the central bank may cut its key policy rates due to a sharp rise in consumer price inflation in early 2009.

Since mid-October, RBI has cut its short term lending rate or the repo rate by 400 basis points and its reverse repo rate by 250 basis points. The two rates currently stand at 5% and 3.5% respectively. The cash reserve ratio (CRR) or the proportion of deposits that banks need to maintain with the RBI has also been lowered by 400 basis points to 5% and DBS said that the RBI was unlikely to bring it down further.