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.
?Yesterday, the RBI has cut repo rates and we hope some more reductions take place in rates,? HDFC chairman Deepak Parekh said here on Tuesday. The Reserve Bank had on Monday cut its key short-term lending rate by 1% to 8%.
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%) were not affordable for the common man, the HDFC chief said, adding that interest rates should be at around 8-9%, 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. Funds crunch has derailed many real estate projects, he said.
Credit Suisse in a note has said risk aversion among Indian lenders has risen so much that a 250 bps CRR cut along with potential SLR/repo rate reduction is barely causing expectations of a 50-100bps decline in lending and deposit rates in the months ahead.
?We think that the monetary policy support being provided is truly extraordinary. We think that as things normalize ? as they surely will ? deposit and lending rates could fall by 300-400bps, if not more, by 2Q09,? said the note.