“Our measures to lower rates should send a direct and decisive signal to banks to lower their lending rates.” He added, referring to the lending paralysis that has gripped India in the wake of the global credit crunch.

The fresh steps “ together with earlier measures would step up demand and arrest growth moderation,” Subbarao said, adding that over Rs 3 lakh crore had been pumped into the financial system so far by the easing measures. Several banks said after the announcement that they would soon cut both lending and deposit rates.” These measures will advance growth for India,” said an economist at state-run Bank of Baroda.

RBI also pumped more money into Sidbi to promote funding for small industries and to give National Housing Bank funds for the realty sector.

The rate cuts-the third by RBI in less that two months-were seen as part of a wider stimulus package expected to galvanized the trillion-dollar economy. Government officials said the package – aimed at helping sectors hit by a slump in domestic demand such as the auto industry could come in the next few days.

The economy has been hit by the global recession and confidence has been undermined by the Mumbai attacks. RBI authorities hope the rate reductions will stimulate investment and consumer demand, which have slowed sharply as the global downturn has weakened the domestic economy.

Economists said the government’s decision to cut fuel prices, a move that was expected to ease inflationary pressures, made it easier for RBI to make deep interest rate cuts.