The Reserve Bank will unveil its first bi-monthly policy review for this fiscal tomorrow amid expectations of a 0.25-0.50 per cent 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 per cent, 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 per cent as inflation has eased."
According to a senior official from a state-owned bank, although a 0.25 per cent rate cut has been factored in by the market, there is also a high possibility of RBI slashing it by 0.50 per cent.
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 per cent reduction in the key interest rate.