The RBI on Tuesday said that its move to cut policy rates is a clear signal for banks to reduce lending rates.
“Indeed, the further policy rate cuts effective as a part of this policy should be a definitive signal for reducing lending rates,” RBI Governor D Subbarao was quoted as saying in Mumbai by correspondents.
Noting that reduction in interest rates by banks across the term structure and across markets had not been uniform, Subbarao said: “Let me therefore reiterate that there is scope for the overall interest rate structure to adjust downwards.”
“Judging from the experience of 2004-07, there is room for downward adjustment of deposit rates…there is scope for the overall interest rate structure to move down within the policy rate easing already effected by the RBI,” the policy said.
Further action on policy rates is now being taken to reinforce this process, the RBI said referring to cut in short-term lending and borrowing rates by 25 basis points.
Meanwhile, the Indian Rupee (INR) on Tuesday dipped to its lowest in the last two weeks, the tender ended with a conversion rate of 50.43-44 per US$, taking its cumulative losses, in the first two days of the week, to over one per cent.