Ahead of the Reserve Bank's quarterly review of monetary policy on July 31, many bankers feel moderate inflation may put a pause on rate hikes, brightening the prospects of a cut in home and personal loan rates.

With many bankers asserting that interest rates have more or less peaked in the country, there are indications that the central bank might not be hawkish in its stance, particularly with inflation falling to 4.27 per cent for the week ended July 7 from over six per cent in April.

Though the central bank's efforts to suck out excess liquidity in the busy season credit policy in April had borne fruit, there is still some liquidity overhang which may result in the RBI's tweaking the cash reserve ratio (CRR), some bankers feel.

"There might be some action to suck out liquidity -- a hike in the cash reserve ratio (CRR) is a possibility," Development Credit Bank's Head, Treasury, K Harihar, told PTI here.

"The hike, if it is resorted to, will not be intended to increase rates but only to suck out liquidity and stabilise inflows," he said.

There is definitely a softening visible in interest rates, but this will be more market-led than regulator-driven, Harihar said, adding that "the words and tone of the policy need to be observed before one can take a definite view".

Yes Bank's Managing Director and CEO Rana Kapoor said the policy would be substantially intact and was likely to mirror the previous ones. Interest rates will soften, he said, adding that "deposit rates are likely to come down to single-digits." Banks' prime lending rates (PLRs) too are likely to head downwards, he said.

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