Interest rates to remain unchanged till October: Bankers

Leading bankers on Tuesday ruled out any rise in the interest rate regime in the second quarter despite the increased pressure on the rates following the Reserve Bank policy action.

Admitting that the Reserve Bank decision to raise the short-term lending (repo) and borrowing (reverse repo) rates will increase pressure on interest rates, bankers said they will take a call on interest rates in October when they expect an increase in credit demand.

Reserve Bank Governor D. Subbarao, however, told newsmen that lending and deposit rates will increase with the rising demand for credit.

“No immediate impact on the interest rate. In Q2 interest rates won’t go up by and large,” State Bank Chairman O.P. Bhatt told reporters after the monetary policy.

Increase in lending rates will be followed by hike in deposit rates, he said, adding, it is difficult to state for the banking industry as each bank would take a call depending on its asset liability position.

The central bank today upped its short-term lending and borrowing rates by 0.25 and 0.50 per cent respectively to bring inflation down to a projected 6 per cent by March next from the double-digits now.

Canara Bank Chairman and Managing Director A.C. Mahajan said, “I don’t see interest rates going up before October.”

Acknowledging that excess liquidity has disappeared from the system, ICICI Bank Chief Executive and Managing Director Chanda Kochhar said interest rates depend not only on policy measures but also on the liquidity situation. “We are already witnessing a rise in interest rates for wholesale deposits,” she said, adding “in the immediate future, I don’t see any (upward) move on interest rates but as we go forward we will definitely see something on that line.”