POLL - RBI seen lowering rates further in 2009

By Anurag Joshi

MUMBAI (Reuters) – The Reserve Bank of India (RBI) is expected to cut interest rates again in 2009 to bolster slowing growth and boost credit demand, a Reuters poll of 11 analysts showed on Tuesday after the Reserve Bank lowered rates earlier in the day.

Out of 11 analysts polled, 10 expected both the repo rate, at which the RBI lends funds, and the reverse repo rate, at which it absorbs funds from the market, to be cut by or before the end of the year.

A cut of 25 basis points in the next six months was the most favoured option for both rates, although one economist expected cuts in the repo rate totalling 100 basis points by December.

The Reserve Bank of India cut the repo and reserve repo rates by a quarter percentage point each at a policy review on Tuesday. The repo rate was lowered to 4.75 percent, and the reverse repo rate to 3.25 percent.

"The key point is we don't expect big-bang rate cuts. There is still a small headroom for rate cuts because of the economic downturn," said Shubhada Rao, chief economist at Yes Bank.

"The key is transmission, that is banks reducing their deposit and lending rates. The real rates in the economy are still high and so there is scope for rates to be lower. The

earlier rate cuts this year are yet to play out," she added.

In Tuesday's policy review, the central bank again called on commercial banks to pass on its rate cuts to customers.