The thinking in the Reserve Bank of India is that stimulating growth is the primary objective and therefore the right signals will be sent to do so.

Money market analysts pointed out that nothwithstanding the fact that Reserve Bank of India governor, Bimal Jalan, has announced bank rate or CRR changes outside of the bi-annual monetary reviews, it is highly unlikely that like moves will be given effect to only as a result of the Fed-rate cut.

And the clamour for a CRR or bank rate cut could well gain momentum with the Gujarat quake as the Trojan horse. While RBI deputy governor, Dr Y V Reddy, told The Financial Express on Wednesday that "the calamity is confined to a part of the country though it does not mean it will not affect the economy, but we are certainly in a position to tackle the losses... there is no possibility of going in for a further borrowing programme for meeting the fiscal needs", the gross borrowing programme at Rs 117,000 crore thereabouts in 2000-2001 is seen inching upwards by many in the next fiscal year. And the Rs 1,000 crore to be mobilised through the two per cent corporate and income tax surcharge is seen as a piffling amount.

"Considerable investments will be required to restore public works and infrastructure", said sources while adding that estimates for restoring this is anybody's guess; and to the extent that Gujarat is a key state on the economic front, the earthquake devastation will affect fisc adversely. The market though is divided on exactly what move the RBI will take given that industrial lobbies are already at work for a rate cut ahead of the upcoming Union Budget.

On the liquidity front, Dr Reddy had stated that "our economy is in a strong position to make up the huge losses in such calamities. The fiscal condition is fairly on track. We have a comfortable liquidity position in the market, which will help to handle the situation".

However, two views hold centre-stage currently: that a higher borrowing programme by Rs 5,000 crore or so can well be absorbed by the market with a small reduction in the CRR from 8.5 per cent. Further, that only a small reduction in CRR may be warranted in the beginning of 2001-2002 given the comparatively smaller load on account of bond-redemptions. And that a CRR cut will be politically correct one as well enabling the NDA government at the Centre to win brownie points.

The second view is that the economy may require a bank rate cut to signal an overall reduction in interest rates to stimulate the economy post the 2 per cent surcharge on corporate and income tax.