As the inflation rate in the economy is cooling, the Reserve Bank of India is likely to announce another round of cut in its key policy rates. Bankers said that the apex regulator can reduce the rates "anytime from now" to support demand in the industry and make cheap credit available to the borrowers.

HDFC Bank's Deputy Head of Treasury, Ashish Parthasarathy said, "A 0.5-1 percent cut in the reverse repo rate 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 a global economic slow down."

Some official from the finance ministry said that the central bank would trim the repo rate, reverse repo rate and cash reserve ratio by 50 basis points each. Presently the repo rate, reverse repo rate and cash reserve ratio (CRR) stand at 6.5%, 5% and 5.5% respectively. Earlier also RBI has revised its policy rates many times in 2008 to ease the liquidity conditions and spurt growth in the economy.

The CRR which is the proportion of deposits that banks need to keep as cash with RBI has been slashed by 350 basis points since August 2008. On the other hand repo rate and reverse repo rate have come down by 250 basis points and 100 basis points respectively.

It is believed that if the CRR is cut by 50 basis points to 5% then Rs 20,000 crore will be infused into the banking system and a cut in policy rates would mean cheaper availability of credit. This can be said because a reduction in reserve repo rate holds back banks from keeping their excess funds with the central bank.

"There is a scope for further cut in policy rates and the reserve requirement. It is possible that CRR may even come below 5%," said another from the finance ministry. However the statutory liquidity ratio (SLR) is expected to remain untouched at 24%. SLR is the proportion of deposits that banks have to compulsorily invest in government securities.

Officials claim the declining inflation rate to be the prime reason for rates cut at this moment. "Inflation is coming down sharply, and it should also give RBI reason to cut rates in the next few weeks," said an official from the finance ministry. The inflation rate in the country has come down to a nine-month low of 6.61% for the week ending December 13th.

The government also agrees with following easy monetary policy. It is also set to announce a second round of fiscal stimulus package to stimulate the economy from the impact of global financial turmoil.