Besides, economists said, banks were in any case reducing rates as was seen in case of Corporation Bank on Thursday and HDFC earlier, which is offering lower interest rates for a limited period. The special offer period was originally meant to end on July 15 but was extended by a month. ICICI Bank CEO K V Kamath on Tuesday had predicted that rates were now headed downwards though his bank is yet to announce a cut.

Strong fiscal and demand control measures by government had seen interest rates being pushed up to squeeze money supply. With an inflationary spiral sending prices of food products and industrial commodities northwards, government took steps that included lowering import tariffs, curbing exports and restricting movement of goods.

The view in PMO is that inflation is clearly the more urgent problem as it is a "tax on the poor"and if restricting money supply shaved a few points of growth, then that was the price to be paid. While growth figures remain strong, it is estimated that the impact of the period of high interest rates is yet to show up in official data.

The political imperatives of controlling inflation had seen PM Manmohan Singh back measures to cap inflation. Pressure on government mounted with public disaffection over price being seen by senior Congress leaders as an important reason for the party's losses in urban areas in Punjab, Maharashtra, Delhi and Uttarakhand earlier this year.

Some banks have reduced rates for fresh loans of Rs 20 lakh and more. More such steps are expected though wider relief for home loan takers will be available only when RBI decides to adjust rates.