“We hope that commercial banks (will) act accordingly. It is a matter of time before banks take a decision on interest rates on home loans. Monetary transmission takes time. However, as there is adequate liquidity in the system now and the demand for money is also falling, interest rates will also move down,” Subbarao said.

On Friday, ICICI Bank reduced its interest rate for home loans of Rs 20 lakh and below by 1.50 per cent to 11.50 per cent. Bankers said that with a comfortable liquidity position and fall in inflation, interest rates would now fall across the board.

A reduction in the repo rate will make borrowing cheaper for commercial banks. The cut in reverse repo rate—the first this year—to 5 per cent will make it less lucrative for banks to park funds with the central bank.

The apex bank did not make any changes in the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR). To provide easier credit to micro and small enterprises, the RBI enhanced the refinance facility for the Small Industries Development Bank of India (SIDBI) by Rs 7,000 crore. The RBI is also working on a Rs 4,000 crore refinance facility for the National Housing Bank (NHB).

Commenting on the health of the economy, the RBI governor said, “The outlook for the Indian economy is mixed. Confidence in global credit markets continues to be low, and credit lines remain clogged. There is evidence of economic activity slowing down.”

Among various measures, the RBI also allowed buyback of foreign currency convertible bonds (FCCBs) of companies out of rupee resources. With export growth turning negative, it also said overdue export bills up to 180 days will get credit not exceeding BPLR minus 2.5 percentage points.

... contd.