Economic Affairs Secretary Shaktikanta Das on Friday said banks are expected to cut interest rates over the next few days following the recent repo rate cut by the Reserve Bank of India (RBI).
"Banks are autonomous and the government has given very strong signal by maintaining the fiscal deficit at 3. 5 percent and resetting small savings rates, " Das told reporters on the sidelines of an event here.
"RBI has reduced the policy rate by 25 basis points. One would expect banks to take a policy call and I am sure they would do it in the days and weeks to come, " he said.
He added that banks are now also expected to make effective transmission of rates.
"We would expect the banks to do a more effective transmission of rates. I do expect banks to take steps in that direction, " he said.
Comforted by the central government's fiscal prudence steps, a cut in interest rates on small savings rates and moderate inflation, India's central bank on Tuesday cut its key lending rate by 25 basis points (bps) in the first monetary policy review for the current fiscal.
The repurchase rate, or the short - term lending rate for commercial banks on loans taken from the RBI, stands lowered to 6. 5 percent from 6. 75 percent. The reverse repurchase rate, or the short - term borrowing rate, has been adjusted upward to 6 percent from 5. 75 percent.
Das also said that with inflation under control, India is moving towards a low interest rate regime.
"We are looking at a regime of low interest rates, thanks to inflation being under control and various measures which the government has taken.
"The finance minister has given a very strong message that India should move to a low interest regime by sticking to the fiscal deficit of 3. 5 percent, " he said.
Announcing the rate cut on Tuesday, RBI Governor Raghuram Rajan declared that the stance of monetary policy will remain accommodative and the bank "will continue to watch macroeconomic and financial developments in the months ahead with a view to responding with further policy action as space opens up". He also said it was more important at this juncture to ensure that all the rate cuts made since last year transmit to lending rates.
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