Mumbai, April 21: Interest rates are grudgingly heading downwards again, coaxed by the RBI whose gestures are yet to be fully matched by reluctant banks.

ICICI Bank, which has been holding out, shaved its floating reference rate for all consumer loans, including home loans, by half a percentage point to 13.25 per cent after the RBI sent out a strong signal to banks.

The RBI slashed two key policy rates — the repo and the reverse repo — by quarter of a percentage point to 4.75 per cent and 3.25 per cent, respectively. The repo is the rate at which the RBI provides funds to banks against the government securities they hold. The reverse repo is the rate at which it sucks out cash from the financial system, especially when it tries to rein in inflation.

The rate cuts have been designed to revive the faltering economy that is projected to grow at 6 per cent this year, sharply down from the 6.5 to 6.7 per cent GDP growth estimated in 2008-09.

This is the fourth time since September 2008 that the RBI has cut the reverse repo — a key benchmark rate — but without matching cuts by commercial banks (see Business). It has cut the reverse repo by 250 basis points since September last year while private banks have pared rates by up to 125 basis points. One percentage point is equal to 100 basis points.

The central bank today tried moral suasion by emphasising that there was sufficient headroom to cut rates. A highlight of the policy statement was the RBI’s concern that banks have not been passing benefits of policy cuts to their customers.

“Reduction in interest rates across the term structure and markets has not been uniform…. There is scope for the overall interest rate structure to move down within the policy rate easing already effected by the Reserve Bank,” it said in its annual policy statement.

ICICI Bank, the country’s second largest commercial bank, responded immediately in contrast with its no-change stand last time. Besides making consumer loans cheaper, the bank trimmed the benchmark lending rate by 50 basis points to 16.25 per cent, which will benefit corporate borrowers. Even after today’s rate cuts, ICICI isn't offering the cheapest benchmark rate for retail loans, including home loans.

However, home loan financier HDFC, which rolled back rates by half a percentage point on March 24, said it had no plans to cut rates further. SBI, which had cut rates in January, has not yet made its stand clear.

Calcutta-based UCO Bank said its board of directors would meet in the next fortnight to consider a quarter percentage point cut in its prime lending rate.

RBI governor D. Subbarao said the central bank was an “apolitical institution” and, therefore, did not need to seek permission from the Election Commission to announce rate cuts in the middle of the general election.