RBI's move will encourage banks to cut rates: Finmin

The Government today said the Reserve Bank's slashing policy rates will provide impetus to banks to cut interest rates and even private sector lenders will lower lending rates "sooner or later."

"We welcome the decision. This will provide adequate impetus to banks to lower their interest rates. Private banks will sooner or later will follow suit," Economic Affairs Secretary Ashok Chawla told reporters here.

RBI yesterday cut short-term lending and borrowing rates -- Repo and Reverse Repo -- by 50 basis points each, while keeping the other key tool, Cash Reserve Ratio, intact. CRR is the proportion of deposits that banks have to keep with the central bank.

Chawla said there was no need of cutting CRR due to enough liquidity. Pointing out that policy rates have been cut whenever the situation has arisen, he said that RBI will take further decision as and when situation unfolds.

RBI had also said yesterday, "It is expected that reduction in policy rates will further encourage banks to provide credit for productive purposes at viable interest rates.

The Reserve Bank on its part would continue to maintain ample liquidity in the system."