NEW DELHI: The government on Friday reduced motor fuel prices for the first time in over two years with the aim of freeing some money in people’s pockets and widening the scope of Saturday’s proposed economic stimulus. Fuel prices are now back at the level prevalent till June 4.

From Saturday, petrol will be cheaper by Rs 5 a litre and diesel by Rs 2 in line with international crude’s fall of over $100 a barrel from its mid-July peak of $147. The price of cooking gas refills have been left untouched as state-run oil marketing companies are still making losses on their sale.

'Consumers expected bigger cuts'

The government's decision to cut petrol and diesel prices restores petrol to the level prevalent till June 4 when the government had raised fuel prices. Diesel, however, will still cost Re 1 more than that level as its price had been revised by Rs 3 a litre. Cooking gas price was raised by Rs 50 a cylinder and has been left alone.

The decision to cut motor fuel prices, taken a day before the central bank is to cut its lending rates, is a calibrated move by the government and fits well in its overall efforts to boost the economy. Lower fuel prices will reduce inflation further and give more headroom to the central bank to keep up consumer demand through lower short-term interest rates.

Federation of All-India Petroleum Traders general secretary Ajay Bansal said motorists were expecting bigger cuts as crude has sunk to $45 a barrel level, its lowest in four years. Aware of the public mood and a Merril Lynch projection of $25/barrel price next year, Congress sources described the cuts as an "interim" measure.