"We are very clear in our mind that the economic environment clearly points towards southward movement of the lending rates. Banks are aware of that and we expect them to move in that direction," Finance Secretary Ashok Chawla said.
Chawla, however, said that it was up to the banks to take a call on the timing and quantum of rate cuts. "How much and when precisely (banks will cut rates) is the decision that banks have to take," he said.
With industrial output contracting, industry is demanding cheaper cost of funds, including lending rates of banks.
In March this year, industry chambers met Prime Minister Manmohan Singh and expressed concern over high lending rates even when inflation had reached near-zero level.
Around a month after the meeting, the Reserve Bank cut its lending and borrowing rates, or repo rate and reverse repo rate respectively, by 25 basis points, signaling reduction in lending rates by banks.
Industry was complaining that private sector banks are not cutting lending rates, but top private lender ICICI Bank was first to cut its lending rate by 50 basis points followed by other banks.