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Bankers and industrialists are pinning hopes on the Reserve Bank of India (RBI) going in for some easing of its tight money policy to spur the slowing economy when it reviews its credit policy on Tuesday.

India Inc attributes the slowdown to the high interest regime and tight liquidity norms put in place by RBI to control inflation. Finance Minister P. Chidambaram is also in favour of easing of interest rates to rev up growth even if it is at the cost of inflation.

The central bank may pump in more money into the economy by reducing the cash reserve ratio (CRR), which determines the amount of money mandatory for banks to keep as idle cash with RBI. Any reduction in the CRR makes more funds available to banks for extend loans.

There has been some tightening on the liquidity situation due to the advance tax outgo. Consequently, banks have been borrowing more from RBI to meet the shortage of cash in the system.

Investment bank Goldman Sachs expects RBI to cut its key interest rate by 0.25 per cent in its policy review following moderation in inflation.

Union Bank of India chairman and managing director D. Sarkar said, "There is expectation that repo rate or CRR could come down by about 25 basis points," he said.

According to bankers, the tight liquidity condition will continue for a while till the government starts spending, and this makes a case for lowering of CRR.

State Bank of India managing director Diwakar Gupta said that RBI should consider cutting both repo rate and the CRR.

Repo is the rate at which RBI lends money to the banks. It stands at eight per cent leading to a high interest rate regime, which is much blamed for slowing industrial growth.

Inflation based on wholesale prices (WPI) declined to 10-month low of 7.24 per cent in November from 7.45 per cent in the previous month raising hopes that RBI may cut rates to spur growth.

As inflation is at its 10-month low, it is time for RBI to take measures to ensure that interest rates are reduced, Rajkumar N. Dhoot, president, Associated Chambers of Commerce and Industry of India, said.

"Enough policy tightening has been done in the past two years and a lot of economic growth has been sacrificed. RBI can choose either a drastic CRR cut or reduction in the repo rate to send a strong message to banks that interest rates are softening," Dhoot added.