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Banks eye more rate cuts from RBI

October 21, 2008 18:15 IST

The banking industry is hoping for more rate cuts by the Reserve Bank, which in turn, will help soften both deposit and lending rates, a top financial industry expert said.

"On Monday, the RBI has cut repo rates and we hope some more reductions take place in rates," HDFC [Get Quote] chairman Deepak Parekh said. The Reserve Bank had on Monday cut its key short-term lending rate by one per cent to eight per cent.

Asked whether interest rates could be expected to decline now, Parekh said it is likely that deposit rates could get reduced first followed by a softening in lending rates.

On the present liquidity situation in the system, Parekh said, "the current liquidity is enough." Real estate prices should decline, Parekh said, when asked of his outlook on the sector. "Sales are dull presently," he said. Discounts given by developers have not been able to attract buyers, he said.

High interest rates (at 12 per cent) were not affordable for the common man, the HDFC chief said, adding that interest rates should be at around 8-9 per cent, which would then be affordable for the common man.                     

"Residential buyers are staying away and will stay away till interest rates come down. Demand can pick up only if interest rates come down," Parekh said.

According to him, cost of projects under construction has increased because of rising raw material prices. Funds crunch has derailed many real estate projects, he said.

"Every year in Mumbai, two property fairs are held. The property fair held recently got a very poor response. Very few people turned up for the fair," he said.

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