New Delhi: Interest rates are likely to rise
in the last quarter of this fiscal by up to 50 basis points as
bond yields may go up and RBI may tighten money supply to rein
in inflation, which is likely to be fuelled as food prices
could move upwards, according to IDBI Gilts.
"...There has not been fundamental change in the economy.
Despite that, the yields on the government papers have
hardened in the range of 30-55 bps in the last one-and-half
months and if this is the trend... then interest rate will
rise by 25-50 bps from December to March," IDBI Gilt Managing
Director & CEO G A Tadas said.
The bond yield may have hardened due to the government's
high borrowing target in the current fiscal.
The government's borrowing target stands at Rs 4.51 lakh
crore for 2009-10, with 66 percent of the borrowing in the
first six months.
He added that in case of failure of agriculture due to
drought-like situation in the country food prices would rise,
which could lead to inflationary pressures in the coming
months.
Agriculture Minister Sharad Pawar has described the
situation in 246 districts in 10 states as "grim" due to
scanty rainfall.
In such a situation, the RBI might tighten its monetary
policy and as a result banks will have to respond by raising
interest rates, Tadas said. If this happens, this would be
reversal of RBI's soft money supply policy since global
financial crisis deepened in the middle of September 2008.
IDBI Gilts Ltd is a subsidiary of state-run lender IDBI
Bank and it operates in debt markets as a primary dealer.
Earlier, the country's largest private sector lender,
ICICI Bank, had said lending rates will start rising any time
now.
"I really believe that interest rates are not going to go
down from here. Gradually they would go up. When? ...would
really depend on how fast the credit growth takes place",
ICICI Bank CEO and Managing Director Chanda Kochhar said.
In April, ICICI Bank was the first to cut lending and
deposit rates by 50 basis points after announcement of the
annual credit policy by the RBI.
However, SBI Chairman O P Bhatt said rates would not
rise till Diwali and may even soften by 25-50 basis points
before the busy season in October.
After Diwali, there is great demand of credit due to the
bust season.
HDFC Chairman Deepak Parekh has also said interest rates
are unlikely to decline in the next three to six months due to
high Government borrowings.
Bureau Report
First Published: Sunday, August 23, 2009, 13:06