Two days after the repo rate cut, the Reserve Bank of India governor Bimal Jalan on Monday said the soft interest rate bias will continue.
"The soft interest rate bias is continuing. It will continue," Jalan told reporters in New Delhi, implying that the lending rates would either remain at the present level or come down further.
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The bank rate, at which RBI lends funds to banks, was slashed by 0.25 per cent to 6 per cent in the last April slack season credit policy.
Although RBI had reduced the bank rate, it kept the repo rate untouched until last Saturday, when it was slashed by 0.50 per cent to 4.5 per cent.
The reduction in repo rate could be seen in the wake of a fall in inflation rate to 3.95 per cent in the week ended August 9, which means a decline in the real interest rate in the economy.
On top of this, monsoon has been satisfactory in most parts of the country.
Jalan had earlier said the decision to cut repo rate would be taken once the inflation and monsoon picture was clear.
With good monsoon this year, it is expected that the economy will go on to post a higher growth. This would imply greater demand for credit.
Bankers have indicated that the repo rate cut would trigger another round of cuts in lending rates to boost investments in the country.
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