NEW DELHI, Jan 5: India’s finance minister has called on banks to lower interest rates to keep Asia’s third-largest economy expanding strongly amid fears aggressive monetary tightening could slow growth.

P. Chidambaram urged state-run banks to reduce lending rates by half a percentage point to spur consumption and investment as signs emerge of a slowdown in consumer spending.

I would like... that banks cut lending and deposit rates by 50 basis points so it stimulates investment and consumption, he told reporters late Friday after meeting heads of state-run banks.

He said he wanted banks to boost lending for consumer goods at the same time as reducing loans to the housing sector, which analysts warn could overheat.

With inflation at a five-year low, falling interest rates globally and surplus liquidity with the banks, the interest rates can come down by 0.25-0.50 percentage points this quarter, Indian Banks Association Chairman M.B.N. Rao said after the meeting with the finance minister.

Economic growth for the first half of the fiscal year to March 2008 was 9.1 per cent. But economists expect the economy to lose pace over the rest of the year as the effects of vigorous monetary tightening to tame prices take hold.

Some banks, however, said they may wait for the central bank’s quarterly monetary policy review on January 29 before deciding on rates.

Most analysts say they expect the central bank to keep rates on hold as it fears that high global oil prices could trigger a rise in state-set domestic fuel prices and is worried about strong world commodity prices.

However, the central bank could signal that India’s rate-tightening cycle is over, with inflation running at 3.5 per cent -- well below its target for this year of close to five per cent, analysts say.

The central bank has hiked rates five times since mid-2006 and boosted reserve requirement to curb inflation.

Prime lending rates -- the benchmark for commercial bank loans to most credit-worthy clients -- now are running as high as 13.25 per cent, up nearly two percentage points from a year earlier.

This has slowed bank lending growth to 22 per cent annually from over 30 per cent. The current level is within the central bank’s lending growth target of around 25 per cent for this fiscal year.—AFP