Close on the heels of one per cent cut in interest rate on small savings scheme and PPF in the Union Budget, the Reserve Bank of India announced on Friday a 0.5 per cent reduction in interest rate on savings account to 3.5 per cent effective Saturday.

The apex bank has also slashed the repo rate by the same percentage points to five per cent from March 3 onwards.

"The savings account rate has been reduced taking into account overall macro economic situation in the country", RBI deputy governor Rakesh Mohan told reporters.

He said the repo rate was currently ruling at 5.5 per cent while the interest rate on savings account stood at four per cent.

The guidelines with regard to these interest rates would be issued separately, he added.

PTI