Home, consumer, corporate and personal loans are likely to become cheaper with the Reserve Bank cutting its key short-term repo rate by 1 per cent to 8 per cent, the first since 2004, bankers said.
"This is clearly an easing of monetary policy and will ensure the smooth functioning of financial markets to support growth," ICICI Bank's joint managing director Chanda Kochhar said.
Banks may take a relook at their interest rate structure in a little while, Corporation Bank's Chairman and Managing Director, B Sambamurthy, told PTI.
Describing the RBI's move as 'being in line with the various recent measures taken,' Sambamurthy said that the liquidity problem has now been addressed.
"With inflation declining and inflationary expectations also under control, banks might reduce interest rates, but it is still too early to take a call."
After slashing the cash reserve ratio by 2.5 per cent from 9 to 6.5 per cent with effect from October 11, the Reserve Bank cut the repo rate on Monday, which is the rate at which banks borrow from the apex bank.
Dena Bank's chief, P L Gairola, said that banks would look at their cost of deposits before deciding on their rates.
"Interest rates could move downwards but much will depend on the cost of deposits. Unless it comes down, lending rates will not fall," he said.
The 2.5 per cent CRR cut with effect from October 11 meant that interest rates would not move up.
"The present repo rate cut could signal a softening in both deposit and lending rates," HDFC Bank's deputy treasurer, Ashish Parthasarathy, said.
Bankers see the repo rate cut as a clear signal from the apex bank that its emphasis is now shifting from combating inflation towards propping up economic growth which has been slipping of late.
"This will certainly help push up economic growth," IDBI Bank's chairman and managing director Yogesh Agarwal said.
"Inflation has peaked and been on the downward curve in the last few weeks. It is now time to focus on growth and the repo rate cut signals an emphasis towards growth," Indian Banks' Association chief executive K Ramakrishnan said.
