Leading public sector banks have announced sharp cuts in deposit rates, as sluggish growth in credit and improved liquidity conditions push interest rates on bank fixed deposits lower.

Government owned Andhra Bank has cut interest rates on all deposits above one year by up to 75 basis points. These cuts are rather steep.

The cut by these two banks on fixed deposits comes close on the heels of cuts by State Bank of India, Bank of Baroda and Punjab National Bank on their own fixed deposits.

The country's largest lender State Bank of India (SBI) reduced interest rates by one per cent for short-term deposits up to Rs 1 crore and maturing between seven to 45 days.

While deposit rates have been cut, one is yet to see any meaningful cuts in lending rates. Base rates at banks have remained the same in the last few months, including private and PSU banks. Lenders are however hopeful that interest rates would be cut in the near future.

Much would depend on how the RBI decides on policy rates in its forthcoming policy meet to be held in Dec 2014. Analysts believe that the reading for October inflation would be important for the RBI to decide on any policy rate cuts.

Should the WPI and CPI inflation edge lower it would be possible for the RBI to reduce rates further.

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