Mumbai: India's central bank, which announces its half-yearly monetary policy on October 29, is expected to reduce the country's growth forecast while leaving key interest rates untouched.

The Reserve Bank of India (RBI), in what will amount to a mid-year review of the economy, is expected to cut its gross domestic product (GDP) growth forecast by at least one per cent to 5.0-5.5 per cent after a drought in key agricultural states, economists said.

In its annual monetary policy announced in April, the RBI projected economic growth of 6.0-6.5 per cent for the year to March 2003.

In the year to March 2002, India's GDP grew by 5.4 per cent.

However, economists doubted the bank would make any fresh cuts in interest rates, believing banks already had excess liquidity.

"Fundamentally, it does not make a case for the Reserve Bank of India for any kind of rate cuts," said N Nagrajan, economist with the Indian Banks Association, the body representing state-owned banks.

"There is already a liquidity overhang which does not justify a cut in the bank rate or the cash reserve ratio (CRR) or even the savings deposit rates," he added.

The CRR is the ratio of cash banks must hold compared with their total deposits. The rate is now 5 per cent.

The RBI has gradually cut the CRR from 11 per cent in August 1998, with every one- per cent cut infusing about Rs 100 billion into the system.

The RBI's bank rate is now 6.5 per cent and its savings deposit rate is 4.5 per cent.

"The bank rate has also lost its significance as a tool to bring down interest rates as these rates are anyway falling due to market forces," said Nagrajan.

He said that the cut on the savings deposit rate is also unlikely, as even a 0.5 per cent cut may lead to a flight of funds to term deposits, in the end meaning higher costs for banks.

The savings deposits rate is considered politically sensitive as households rather than companies hold the bulk of such savings.

Prime Minister Atal Behari Vajpayee's government has come under pressure over its past low interest rate policies, which some observers believe have distanced the party from its traditional middle-class vote bank.