Jan. 23: Ben Bernanke, chairman of the US Federal Reserve, may have slashed interest rates — and may do so again next week — but Reserve Bank governor Yaga Venugopal Reddy isn’t expected to follow suit.

The clamour for a rate cut has already begun: the industry forums have urged the Reserve Bank of India (RBI) to slash rates and bolster the economy which has started to show some signs of flagging after three years of over 9 per cent growth.

“With inflation under control and hovering around 3 per cent, it is the right time for the RBI to cut the repo and reverse repo rates to cover the relative competitive disadvantage India is currently facing on macroeconomic fundamentals,” CII president Sunil Mittal said in a statement.

The repo and reverse repo rates are currently pegged at 7.75 per cent and 6 per cent, respectively.

On Tuesday, the Fed stunned the markets by trimming the federal funds rate by 75 basis points — the sharpest cut in 23 years.

But bankers in Mumbai don’t expect Reddy to change course so dramatically: the Fed rate cut signals that Bernanke doesn’t see inflation as the real worry any more. The Fed has been caught up in the talk of a looming recession in the US and acted swiftly to quell the disquiet over stuttering growth.

Although India’s growth forecasts for the year have been moderated to about 8 per cent this year, there’s no real worry that growth will stall.

Bankers feel Reddy will bide his time and wait for the appropriate factors to play out before opting for a cut in interest rates.

Some bankers, however, felt that a 25-basis-point cut in reverse repo (the rate at which the RBI absorbs liquidity) could be announced on January 29 when the central bank reviews its monetary policy. They argue that such a move will spur the country’s growth rate and bring down the interest rate differential between the US and India.

The proponents of a rate-cut theory argue that the interest rate differential between the Fed fund rate and the repo rate in India has widened to 425 basis points, which can spur higher inflows from non-resident Indians. The RBI doesn’t want to be swamped with huge dollar inflows just yet and, the argument goes, it may want to recalibrate the rates.

There are a couple of other factors as well that the RBI will take into account before deciding its monetary stance. While India’s growth rate has marginally slowed, comfortable inflation levels and lower crude oil prices could see the RBI governor giving more importance to growth rather than combating inflation.

In a bid to tackle inflation, the central bank had raised the reverse repo rate by 1.5 percentage points since October 2004. At the same time, with liquidity rising due to a variety of reasons, the RBI raised the cash reserve ratio — the portion of deposits which banks have to maintain with the RBI — by 2.5 per cent since 2004.

But the majoriy of bankers discount the possibility of such a precipitate step.

State Bank chairman .P. Bhatt feels that Reddy is likely to maintain status quo on interest rates. “Though there may not be a rise in rates, the Fed cut in the US does not mean that rates should automatically go down in India or that India should follow the Fed’s cue… It may not go up. It may remain the same,” he told reporters.

Harihar Krishnamurthy, country treasurer at Development Credit Bank, said there was no urgent need for the central bank to cut rates.

He added that Reddy would prefer to wait for other factors that included a possible hike in the prices of petroleum products and inflows into the country before effecting a cut in key policy instruments.