With the inflation rate almost halving from the peak levels in August and economic growth slackening, Planning Commission Deputy Chairman Montek Singh Ahluwalia today said there is further scope for the Reserve Bank of India to cut lending rates.

"It is clear at the moment that the economy is growing below its potential and inflation is definitely on its way down. And these factors would suggest that there is a scope (for easing monetary policy)," Ahluwalia told reporters in Mumbai.

RBI Governor D Subbarao on Monday met Prime Minister Manmohan Singh at his residence, adding to the speculation that RBI might signal further cut in interest rates to boost economic growth which is impacted by the global crisis.

The apex bank had already injected Rs 3,00,000 crore (Rs 3,000 billion) into the system slashing the policy and reserve ratio rates to inject funds into the cash strapped economy.

Responding to the steps taken by the RBI, several banks including the largest lender SBI [Get Quote] have cut lending and borrowing rates.

State-owned banks like the Punjab National Bank [Get Quote], Bank of Baroda [Get Quote] and Dena Bank [Get Quote] today reduced their benchmark lending rates by up to 75 basis points.

The government, in its Mid-year review of the economy presented in Parliament recently said there was considerable scope for monetary policy easing over the next 6-12 months to offset the global increase in demand for money that is being transmitted to India.

Ahluwalia said, "We should be watching the situation carefully and we should not hesitate to take further steps. These matters are being discussed...our prospects for inflation justify taking a stronger monetary position."

Inflation which had peaked to 12.91 per cent in August came down to 6.61 per cent in December.