Mumbai, Nov. 1: Interest rates on loans for housing, cars and a range of household goods seemed all set to go down after the Reserve Bank of India today trimmed a key short-term lending rate — the repo — by half a percentage point to 7.5 per cent.

The repo is the rate at which the RBI provides short-term loans to banks. The central bank has often used it as a rate-signalling device. This is the second repo cut in the last 10 days.

IDBI Bank responded immediately by cutting its home loan rates by half a percentage point to 11 per cent.

However, the larger home loan financiers — HDFC and ICICI Bank — said they would prefer to wait and assess whether the financial system had enough money on tap to meet the burgeoning demand for credit. These entities are likely to wait for a fortnight before taking a final decision.

IDBI said the rate cut would be applicable to both existing and new customers. However, the bank also raised the margin on housing loans — the amount a borrower needs to stump up first — from 15 per cent to 20 per cent for loans of up to Rs 30 lakh and to 25 per cent for loans over Rs 30 lakh, the bank said.

It also cut the interest rate on education loans by half a percentage point.

The RBI also cut two key reserve ratios for banks which will pump in another Rs 70,000 crore into the financial system.

The cash reserve ratio (CRR) — the amount of cash as a percentage of their total deposits that banks must keep with the RBI — was cut by one percentage point to 5.5 per cent. At the same time, the statutory liquidity ratio (SLR) — the amount of cash that banks must invest in approved securities like government bonds — was lowered by one percentage point to 24 per cent.

The rate cut and the changes in the reserve ratios come in the wake of similar cuts in the US and Japan. The European Central Bank and the Bank of England are expected to trim their benchmark interest rates next week.

Industry sources said the cash infusion through the changes in the reserve ratios would ease the tight liquidity situation. However, the fear is that the cash situation could become tight once again if the foreign institutional investors continue to sell shares in a skittish market and the central bank intervenes to stem the rupee’s slide against the dollar.

T.S. Narayanasami, chairman of the Indian Banks’ Association, said: “An increase in liquidity should bring down interest rates. But this will take a month or two because the banks have a lot of loan sanctions on their books and these have not turned into disbursements.”

Some banks like Union Bank of India have brought down interest rates on home loans in recent times. But these have largely been festive offers.

Sources said Bank of Baroda would take a call on interest rates next week.

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