The Reserve Bank of India, which slashed the repurchase rate (repo) and savings bank rate by half a percentage point each on February 28, is certain to cut the bank rate in April.

The market is betting on whether RBI Governor Bimal Jalan will do it on April 1 or wait till April 29, when the Credit Policy for 2003-04 will be announced.

Given his uncanny knack of springing a surprise, Jalan could cut the bank rate by half a percentage point on April 1 and wait for the credit policy to cut the cash reserve ratio.

However, the uncertainties arising out of the war in Iraq may force him to put his plans on hold. The bank rate, last cut in October 2002, is now at its three-decade low of 6.25 per cent, while the cash reserve ratio is at 4.75 per cent.

The current level of inflation is not a worry for the central bank, but a prolonged war and a rise in inflation triggered by a ballooning oil price, may force Jalan to wait till April 29 to bite the bullet. After all, he will hate to reverse his decision forced by external circumstances.

This is what had happened in 2000-01. While Jalan had cut the bank rate from 8 per cent to 7 on April 1, 2000, he had to reverse his decision four months later to ease the pressure on the rupee, which had a free fall against the dollar.

Though the timing is uncertain, a cut in the bank rate and the cash reserve ratio is certain. After the bank rate and the cash reserve ratio were cut in the mid-term credit policy in October 2002, Jalan had said he would not resort to any more rate cuts during 2002-03.

Therefore, if he cuts the rates in April, bankers cannot accuse him of misguiding the market. Once the bank rate is cut, banks will have to lower their lending rates.

The finance ministry is in favour of lower interest rates to push growth. Therefore, the Reserve Bank can only delay the cut, but cannot ignore it. A cut in the cash reserve ratio is also certain because the RBI needs to infuse liquidity to finance the government's huge borrowing programme in 2003-04.

The waiting game

• The bank rate is now at a three-decade low of 6.25%

• The RBI may cut the bank rate on April 1 and the CRR on April 29

• The implications of the war may force a delay in the rate cuts