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Are interest rates headed downwards?

Last fortnight, many banks, among them the largest private and public sector banks—ICICI Bank and State Bank of India—cut interest rates on auto, home and other loans for new borrowers up to the end of the month.

Shalini S. Dagar | Print Edition: Nov 4, 2007

Last fortnight, many banks, among them the largest private and public sector banks—ICICI Bank and State Bank of India—cut interest rates on auto, home and other loans for new borrowers up to the end of the month. Some even slashed deposit rates on select tenures and special deposit schemes.

So, has the interest rate cycle turned? These pre-emptive cuts, ahead of the Reserve Bank of India’s quarterly review in end-October, may lead one believe so.

However, while bankers are certain that interest rates have peaked, they are not sure whether an acrossthe-board decline is in the offing anytime soon. Hence, the patchy cuts, mostly up to October 31. There seems to be merit in waiting for RBI’s signal, they say.

Rajeev Sabarwal, Head (Retail & Rural Loans), ICICI Bank, sums it up: “It is very difficult to say where the interest rates are headed.” The festive season offers currently on are mostly short-term measures to fuel consumer demand that has slackened due to a combination of factors over the past few months.

And this time, RBI Governor Y.V. Reddy does not have to just contend with a slowdown in consumer demand while deciding on rates. Other variables on his table include buoyant capital inflows, an appreciating currency, inflation and overall economic growth.

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