New Delhi: State-owned Central Bank of India said it will cut interest rates on housing and other loans by up to 0.5 per cent from September 1.

"We have decided to reduce the rate of interest on the car loans. We have decided (to cut)... Housing loan rate by 25 to 50 basis on houses between 30-35 lakh. These will be effective from September 1," Central Bank of India Chairman and Managing Director M V Tanksale told reporters on the sidelines of a PHDCCI function.

The decision to lower rate comes within a week of Finance Minister P Chidambaram asking the PSU banks to cut interest rates with a view to boosting sales of consumer goods and promoting growth. The Minister had cited the example of SBI on how EMI reduction boosted sales of cars.

"We all appreciate and agree that there is a necessity for fuelling the growth engine...The best way to fuel the growth engine is to offer some consumer durable loans at a lesser rate," Tanksale said.

The Central Bank chief, however, made it clear that the reduction of interest rates by 0.25 to 0.5 percent would only be on selected products.

The Central Bank, he added, was not contemplating reduction in base rate -- the minimum interest rate below which bank does not provide credit.

Commenting on SBI Chairman Pratip Chaudhuri's suggestion of doing away with the Cash Reserve Ratio (CRR), Tanksale said, "the only thing I would like to say (is) that 3 per cent CRR should be there".

Moreover, he added, "these are the monetary tools in the hands of the regulator (RBI). CRR cut will help me in more liquidity at a lesser cost".

Tanksale also pitched for increasing lending to the Small and Medium Enterprises (SME) and other priority sector like agriculture.