Mumbai, Dec. 6: Loans to buy apartments, a range of home appliances and electronic gadgets will now become cheaper.

The Reserve Bank of India today sent out a clear rate cut signal to banks when it slashed two benchmark interest rates — the short-term lending rate called the repo and the short-term borrowing rate called the reverse repo — by an identical one percentage point.

The repo, the rate at which banks borrow short-term funds from the RBI, has been cut to 6.5 per cent. The reverse repo, the rate at which the RBI mops up surplus funds with banks, has been trimmed to 5 per cent. A cut in the reverse repo is also an indication the central bank believes there is enough money swilling around in the financial system.

RBI governor Duvvuri Subbarao said: “We have talked to the bankers. Our expectation is that banks will respond to the measures announced today by lowering lending and deposit rates.”

Bankers had anticipated the double rate cut: while personal and corporate loans will become cheaper, savers will have to brace for a reduction in fixed deposit rates, which recently topped 10.5 per cent for a one-year tenure.

The RBI’s action prompted Yes Bank to cut its benchmark prime lending rate by half a percentage point to 16.5 per cent with effect from December 8. This will immediately impact home loan rates, particularly for existing borrowers.

Ahead of the RBI announcement, ICICI Bank pared its interest rate by 1.5 per cent for home loans of up to Rs 20 lakh to 11.5 per cent. But this will be applicable only to new loans.

Top ICICI Bank officials indicated the EMIs of existing borrowers would come down after a short while. The relief is expected after the bank slices its fixed deposit and prime lending rates. “The interest rates are expected to soften with these measures,” said Chanda Kochhar, the bank’s joint managing director.

Punjab National Bank indicated it could review lending rates next month. Senior officials at the State Bank of India, IDBI Bank and Dena Bank said deposit and lending rates were likely to fall in the next few days.