Interest rates on housing and others loans are not likely to increase till September this year. There was an apprehension that money supply would tighten after RBI's April 20 credit policy, which raised the key rates by 25 basis points. Tightening of liquidity condition puts an upward pressure on rates.
However, bankers feel that as inflow of foreign funds has improved in the last couple of months, liquidity condition has improved. Huge inflow of foreign fund is forcing RBI to buy dollar by infusing rupee in the market, said a foreign exchange trader in a public sector bank.
"Liquidity condition is comfortable and funds are available at competitive rates to productive sectors. In the present condition, rates are not likely to firm up till September," said Indian Bank CMD TN Bhasin. Another banker said the average surplus liquidity that banks are parking with RBI under liquidity adjustment facility (LAF) has again touched around Rs 50,000 crore. Banks park this surplus liquidity at an annual interest rate of 3.75%. Besides this, he said, banks have kept Rs 78,000 crore under liquid fund schemes with mutual funds, where the annual return is around 5%.
The global scenario is also favouring a lower interest rate regime. A senior economist with a bank said the crisis in Greece will force the policy makers of the central banks of Europe and US to continue with soft interest rates. He said this will make India a more attractive destination to invest, which will lead to improvement in liquidity. The yield on 10-year government bond dipped by around half a percentage point in the last 15 days. The yield on bond maturing in 2022 fell by 44 basis points to 7.88% on Tuesday from 8.32% on April 16, a sign of softening of interest rates.
A senior banker, who does not want to be quoted, said in the present global condition, RBI will not go for any steep hike in interest rates. He agreed with RBI deputy governor KC Chakrabarty's recent statement that there was no immediate need for a policy action before scheduled credit policy review in July. There was apprehension that RBI might increase the policy rates to tighten the money market before July. One factor which can force RBI to raise interest rates is rising inflation. The banker said a good rabi harvest and indication of normal monsoon will help bring inflation under control in the next couple of weeks.
Chief economist of HDFC Ltd, DK Joshi said domestic conditions will have bigger impact on interest rate movement than global conditions. The government's huge borrowing programme in 2010-11 can push interest rates up, he added. Government is set to borrow Rs 4.67 lakh crore from the market in 2010-11, of which Rs 2.87 lakh crore will be raised in the April-September period.
Source : timesofindia.indiatimes.com