Interest rates may be down by 0.25-0.50%

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The Indian economy may soon see interest rates easing by quarter to half a per cent, with bankers hinting at a cut in lending and deposit rates following a request by Finance Minister P Chidambaram.

The cut in lending rate could, however, be restricted to loans for consumer goods as the Finance Minister favoured moderating credit to the housing sector as per Reserve Bank's directions.

"With inflation at its five-year low, falling interest rates globally, and surplus liquidity with the banks, the interest rates can come down by 0.25-0.50 per cent this quarter," Indian Banks Association Chairman M B N Rao told reporters here.

After meeting bankers earlier in the day, Chidambaram said that he would like PSU banks to cut deposit and lending rates by half a per cent to spur investment and consumption so that the economy can be sustained on a high growth path.

"I would like, I can't wish this, that banks cut lending and deposit rates by 50 basis points so that it stimulates investment and consumption," he said.

He also wanted banks to enhance lending for consumer goods, while credit to housing sector could continue to be moderated as per the RBI's directions.

The Finance Minister said cut in interest rates have to be decided by each bank, taking into consideration its assets and liabilities.

Rao, who heads Canara Bank, said that his bank would take a decision in this regard after a meeting of the Asset- Liability Committee shortly.