Subbarao expects banks to lower interest rates

Reserve Bank Governor D Subbarao today said he expected banks to respond to measures announced today by the central bank and lower interest rates.

Many banks had refrained from effecting significant cuts in interest rates despite the Reserve Bank taking a host of measures over the last couple of months.

The apex bank today announced more steps to boost credit and further lowered the repo and the reverse repo rates by one percentage point each.

"We have talked to bankers. Our expectation is that banks will respond to the measures announced today by lowering lending and deposit rates," Subbarao told reporters here.

RBI Deputy Governor Rakesh Mohan said the deposit and lending rates reflect demand and supply of funds. Earlier liquidity was low and demand for funds high, which reflected in high deposit and lending rates.

Now, the demand and supply equation has changed. There is adequate liquidity while demand has slackened. The cummulative impact of measures taken so far, along with today's measures, will have an effect, he said.

Responding to queries on inflation and GDP growth for the current fiscal, Subbarao said the apex bank had estimated growth of 7.5 per cent for the year. However, the growth rate may be lower than that, he said.

The Governor, however, was upbeat on the issue of inflation and said the decline in price rise so far has been sharper than expected and by the end of the year could be significantly lower than what had been estimated earlier.