Finance Minister P Chidambaram would like to see banks cut interest rates further. And if that happens, it would be an added bonus for scores of urban Indians who are already feeling richer with tax concessions announced in the budget for 2008-09.
On Tuesday, Chidambaram told a gathering of business leaders that "there is some scope for deposit rates to come down and hence, interest rates to drop". But he said the final decision rested with the RBI, which has increased lending rates over the past two years to control inflation by leaving less money in the system.
The RBI's tight money stance hurt sales of automobiles and consumer durables, which are driven by easy loans, and brought more hardship for middle-class families that have taken home loans with a floating-rate plan.
There was no immediate response from the RBI to the minister's comments, but few expect more cuts in interest rates, given that the inflation rate has firmed up in recent weeks. Also, several banks cut lending rates up to 50 basis points last month following similar suggestions from Chidambaram. MV Nair, Union Bank of India CMD, said banks might find it difficult to cut rates immediately.