Mumbai, May 15 (KNN)  With inflation coming down, RBI Governor D Subbarao today indicated that the interest rates may be heading downward, a move which will reduce the cost of borrowing by industry, particularly small and medium enterprises.

As admitted by Subbarao himself, the country’s small and medium enterprises are in distress as they battle the economic slowdown which has resulted into a sharp reduction in their businesses and at the same time high cost of borrowing.

It is in this context that banks after banks are issuing recovery notices almost every day and publishing the same in the newspapers along with the photographs of the defaulters. The industry bodies like Assocham have decried the move saying it amounts to humiliation for a fault which is not the making of the failed entrepreneurs.

The RBI Governor said in Frankfurt that the central bank would, "take note of softening inflation," according to media reports which quoted him.

The central bank had cut the benchmark policy interest rates by just 0.25 percentage points on May-3.  However, the banks have not passed the cut in the policy rates to the consumers stating the cost of mobilisation of funds is still high. 

In the backdrop of his assurance, the sentiment in the financial markets improved today significantly and the stock market zoomed up by over 500 points.
 
The inflation based on the wholesale price index for April fell below five per cent for the first time in more than three years. It may help growth by way of giving a boost to demand.   Analysts say it is early days but at least some hope is handed out by the RBI chief who has followed a tough line on interest rates.  (KNN)