NEW DELHI. Apr 3: India's central bank rate cut is likely to sustain the country's industrial recovery but the full impact will be muted by inherent rigidities in the banking system, analysts say. reports Reuters.

While the central bank's Saturday rate cut sent out a strong signal that it wants lower interest rates in the economy. commercial banks may not be in a position to follow suit on lending rates as they are constrained by high transaction costs.

"It is clear that the RBI wants to maintain the momentum in

Industrial growth." said Vasan Shridharan. treasury economist at Standard Chartered Bank.

Industrial output grew 7.2 per cent in April 1999-January 2000 over the same period a year earlier and compared to four per cent growth in the whole of fiscal T998/99 while GDP is seen up 5.9 per cent in (he 1999/2000 April to March fiscal year.

Analysts argue that lower interest rates are required if the economy is to shift into the higher growth trajectory of seven to eight per cent that the

government sees as essential if it is to meet the needs of a billion-strong population.

"You need low-cost funds to keep the economy going." Shridharan said.

The Reserve Bank of India (RBI) on Saturday lowered banks' cash reserve ratio (CRR) to eight per cent from nine in two equal stages of 50 basis points, effective on April 8 and April 22.

The two-phase cut will make available to commercial banks some 72 billion Indian rupees ($1.65 billion) currently deposited with the central bank.