DELHI: Finance Minister P Chidambaram wants lower interest rates. Alarmed at the fall in demand and lower industrial output numbers, the finance minister said policy rates could head lower if inflation continues to moderate. Chidambaram is also willing to consider tax breaks to kickstart demand in some sectors.

The falling inflation rate seems to be music to the Finance Minister's ears. He said if inflation which is now at a six month low were to continue falling, there was room for interest rates to be lowered. This should surely cheer the bond markets which have been waiting for such a move.

The finance ministry is also examining fiscal measures to kick start demand. Chidambaram said he was willing to lower taxes in sectors where demand has been hit. The auto sector has been demanding tax breaks on the small cars and commercial vehicles to boost demand in the sector.

Auto sector has been one of the worst hit by the current slowdown and has been asking for tax cuts to boost demand, but it would have to vie with sectors like real estate and construction for the government's mercy.