The 25 basis points cut in the repo rate by the Reserve Bank of India on Thursday gives an indication of downward bias in interest rates, according to Indian Banks' Association Chairman TM Bhasin.

Banks have already started reducing the interest rate on deposits, which will eventually bring down the cost of funds, prompting the banks to cut the lending rates, said Bhasin, who is also the chief of Indian Bank.

In a surprise move, RBI early Thursday cut the repo rate (the interest rate at which it provides short-term liquidity to banks) from 8.0 per cent to 7.75 per cent.

Bhasin said the cut was expected due to the easing of both wholesale and retail inflation. In the fifth bi-monthly policy itself, the Governor had indicated a change in the monetary policy stance.

"Considering the benign trend in both CPI and WPI in the last two months, it was quite clear that disinflationary trend has already set in the economy. Coupled with this the Government’s resolve to propel growth through various policy measures has given adequate comfort to RBI for the rate cut," he said.

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