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Banks should cut interest rates: EA chief

December 23, 2008 14:35 IST

The RBI has room to effect a further one percentage point cut each in the short-term rate at which it lends and borrows from banks, as inflation may ease to 4-5 per cent by this fiscal-end, Prime Minister's Economic Advisory panel chief Suresh Tendulkar said on Tuesday.

"A one percentage point cut in both the repo and reverse repo rates is desirable," he told reporters in Mumbai, adding that "inflation is expected to decline to around 4-5 per cent by end of this fiscal."

Earlier this month, the Reserve Bank had cut the two key short-term rates by a percentage point each to boost money supply in the economy. Since then, inflation has dipped to the lowest in nine months at 6.84 per cent.

With inflation now not likely to prove a major headache, it is widely expected that the apex bank would effect rate cuts to give a boost to the growth momentum.

Public sector banks have already begun slashing their prime lending rates while some in the private sector space have so far refrained from doing so. "Private sector banks will (now) have to reduce their rates," Tendulkar said.

"Banks are well-capitalised but the current problem is that they are unwilling to lend," he said.

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