The new rates, applicable on new loans till October 31, will come into effect immediately, an ICICI spokesperson said.

The reduction comes after finance minister P Chidambaram asked banks to have a re-look at the interest rates to stimulate demand in the economy.

Top lender State Bank of India had yesterday announced a reduction in interest rates on home and other retail loans by 0.5-1 per cent for different maturities as part of a festival offer.

ICICI Bank said the it would review the reductions in retail lending rates at the end of this month, after the Reserve Bank of India (RBI) undertakes second quarterly review of its 2007-08 monetary policy.

ICI bank has been defending the higher interest rates on home loans as banks have increased deposit rates as wee.

ICICI Bank is currently offering an interest rate of 9.5 per cent for 390-day deposits. Another public sector lender, Bank of India, recently withdrew its special deposit scheme which offered 9.60 per cent for 400-day deposits.