Banks May Not Up Interest Rates For Next Six Months

Banks May Not Up Interest Rates For Next Six Months

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New Year has brought a good news for the Corporate India.

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SBI Bank chairman has indicated that there will be no increase in interest rates for next six months despite inflationary pressure.

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As inflation is rising, there was speculation going around that RBI, (in its review of monetary policy) might take measures to tighten the money supply which would have led to the hardening of interest rates.

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As the global economy is still in the grip of recession, industry players feel that any hike in interest rates will affect the economic recovery in India.

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Banks authorities and market analysts feel that there was surplus liquidity in the system and credit offtake was slowly picking up.

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This situation of liquidity surplus will force banks not to increase interest rates, in current situation.

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Because of this surplus liquidity, banks have cut deposits rates.

But they are not cutting the lending rates due to slow credit offtake, despite the speculation that RBI can increase key rates (repo or reverse repo) to contain inflation.

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🙂

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In the eight months of the current financial year till December 4, while the deposits with the commercial banks rose by 3,69,535 crore, credit off take was only Rs 1,44,151 crore.

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This forced the banks to park around Rs 100,000 crore with the RBI at reverse repo rate of 3.25%.

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🙂

When the interest rate condition was benign, Banks had cut their lending rates, particularly home loan rate.

This had helped reviving real estate market. The buyers started coming back and cement and steel sectors also started improving.

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The recession did not hit India the way it had affected European countries last year.

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There was only a slowdown in the growth rate which came down to 7% from 9%.

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Market experts believe that withdrawal of stimulus package by the government should not be done in the prevailing situation, but should be phased out in staggered manner.

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🙂

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