Forecasting that inflation is inching towards zero, ICICI Bank [Get Quote] managing director and chief executive officer K V Kamath on Tuesday suggested to the Reserve Bank of India [Get Quote] to further cut key policy rates by 100 basis points as part of a calibrated move to usher in a low interest rate regime.

"I think just now let us start by cutting them (repo and reverse repo rates) by 1 per cent or so, and see what happens," he told PTI when asked for what his advise would be for RBI to reverse the economic slowdown.

Kamath, who is also the President of the Confederation of Indian Industry, said, "It would be in everybody's interest to work interest rates down. Inflation clearly could be brought down to near zero. I think it is the right time to work on this front (reducing interest rates) now.

"The economy thrives in a low-interest rate scenario. By the time inflation comes to zero or near zero, we have interest rates down where we wanted. . . so I think use repo and reverse repo in small measures and see what they do to interest rates."

The inflation has nearly halved from the peak of 12.91 per cent in August and with sharp decline in commodity and crude prices in the international market, it is likely to dip further.

Having already taken host of measures to pump in Rs 300,000 crore (Rs 3,000 billion) into the system, RBI Governor D Subbarao, who is reportedly working on more initiatives, met Prime Minister Manmohan Singh on Monday.

The government in its Mid-Year Economic Review too made a case for 'aggressive' easing of the monetary policy by RBI and reduction in benchmark interest rates in the next 6-12 months.

RBI, Kamath said, could give further fillip (reduction in benchmark rates) to interest rates so that the benefits could be passed on to both industry as well as consumers.

Appropriate signals through cut in key policy rates, he said, would 'indeed bring down the rates from where they are today'.

Since October, the Reserve Bank has reduced Repo by 250 basis points and Reserve Repo by 100 basis points to 6.5 per cent and 5 per cent, respectively, signalling a soft interest rate regime.

As for the ICICI Bank customers, Kamath promised, they would get their new year gift in the form of a cut in interest rates.

"We are looking at cutting interest rates very early in January for our housing and other loan customers," he said.

The extent of the rate cut is being calibrated and would be announced soon, he said when asked if the rate could be more than 100 basis points.

ICICI had earlier this month reduced home loan rates for new customers by up to 1.5 percentage point. There are indications that the fresh cut in interest rates would benefit both existing and new customers.

The prime lending rate of the bank currently stands at 17.25 per cent. The bank last revised the benchmark lending rate by effecting 75 basis points' hike in August this year.

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