The move by the Reserve Bank of India (RBI) to cut repo and reverse repo rates, the rates at which the central bank lends to commercial banks and borrows from them, by a percentage point is yet another signal for the investors that the time for a lower interest rate regime has begun.

That the interest rates will ease in the next few months is an expectation that many have started to build in their calculations. The fact that crude oil prices have shrunk to $40 levels and now even if they rise, they are not expected to be in the danger zone as they were a year ago, adds to the optimism. Even if crude oil stabilises at the $60 a barrel, the government can have enough legroom to cut oil prices further. And this means that the inflation levels will come down drastically.

Even RBI governor Subbarao has hinted that the inflation rate could be well below the 7% target set for the year-end. So, we have scope for a few more rate cuts to get the prime lending rate back to single digit numbers. This means spurring of growth again. Equities therefore will start looking positive once again. And the threat to a super slowdown to earnings growth will assuage. Hence, if you wanted to time the market, this could be the right moment, reckons an Rakesh Jain, an analyst with a broking firm. The real estate sector that has been beaten to pulp in the meltdown could be an extremely contrarian play, reckons Jain.

The RBI governor has said the special dispensation for treating loans to housing finance companies (HFC) as priority sector lending will increase the flow of funds to the housing sectors. The banking regulator also announced a similar Rs 4,000 crore facility to National Housing Bank and would come out with the details of this package next week.

The apex bank also decided to classify housing loans below Rs 20 lakh from housing finance companies to individuals under the priority sector, but said banks can lend only 5% of their total priority sector lending under this category. According to current norms, a bank has to set aside 40% of its deposits for lending under the priority sector head.

Loans by banks to housing finance companies for on-lending to individuals for purchasing or constructing dwelling units may be classified under the priority sector, provided the housing loans granted by HFCs do not exceed Rs 20 lakh per dwelling unit per family, the statement said.

Therefore, analyst expect two things, one is already happening, the softening of home loan rates. And the second is easing of the liquidity crunch for real estate players. Hence, the demand and the supply both are being strengthened. The results, however, will take time to surface as the impact will be felt three to four months down the line.

Ashish Parthsarthy, deputy head, treasury, HDFC Bank, says, ? Over a period of time, the Indian banking space will witness a reduction in lending as well as the deposit rates although it is not clear as to when that would happen.? Simularly, Partho Mukherjee, senior VP forex and treasury, Axis Bank, adds, ?The recent monetary measures by the Reserve Bank of India will undoubtedly facilitate banks in India to lower lending as well as their deposit rates in days to come, although it may not happen very soon.?

There is yet another fiscal stimulus package around the corner and this would look to spur up the manufacturing sector, especially the infrastructure related industries. And these sectors will definitely pick up momentum in the markets ahead of the actual earnings visibility coming in, reckon fund managers.

However, if you are a fixed income or debt-oriented investor, it would be wise to lock in to some attractive rates available now. Banks are soon expected to lower their deposit rates.

They are also under pressure from the authorities to relax the rates and lower their lending rates as well. Also, some of the blue-chip corporates are offering attractive fixed deposits.

But before investing in corporate deposits it would work to look at the credit rating and also the cash flow situation. A lot many companies, seemingly of good repute, in the nineties have defaulted on their fixed deposit obligations. Here, a mutual fund, that regularly discloses its portfolio is seen as a better option.

K. Ramkumar, head, fixed income, Sundaram BNP Paribas Mutual, says, ?This cut brings good news to the corporate debt segment, while government securities will be less bullish compared to debt segment.? The yields on the government securities have fallen and the price rises have happened, hence there is not much scope at the moment for the gilt-edged funds or the papers to provide quick returns like they did earlier. A diversified debt fund could well be the choice.