'Inflation, lending rates to ease in 2-3 months' | business | Hindustan Times
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'Inflation, lending rates to ease in 2-3 months'

business Updated: May 09, 2008 15:23 IST
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Bankers on Friday discounted fears of any hardening in interest rates and said they expected both inflation as well as select lending rates to ease over the next 2-3-months.

This they expect to happen despite headline inflation spiralling to 7.61 per cent for the week ended April 26, up from the previous week's mark of 7.57, driven by soaring international commodity and oil prices.

"Inflation will certainly come down in the short term, perhaps in 2-3 months. The present high rate is mainly due to the base effect and high international prices," HDFC's Managing Director Keki Mistry told PTI here.

The inflation figure has been exaggerated by the base effect, Mistry said, adding that the combination of monetary and fiscal measures taken by the authorities would drive down inflation in the next couple of months.

"I expect interest rates to stay stable in the short-term...I don't think anybody will effect a further hike in (lending). At the same time, lowering of interest rates are also unlikely in the short-term," he said.

However, banks and home loan lenders might take a cue from the Reserve Bank, which, in its last monetary policy lowered the risk weight for home loans between Rs 20 lakh and Rs 30 lakh to 50 per cent, and extend some relief to borrowers.

In the first indication of such a line of thinking, Union Bank of India, effected a 0.25-1 per cent cut in its lending rates for home loans up to Rs 30-lakh.

However, while there might be rate reductions in select segments, an across-the-board cut in lending rates, including in banks' prime lending rates, appears unlikely over the next 2-3-months.

Bankers said the fiscal and monetary measures initiated by policymakers to contain inflation, such as a 0.75 per cent hike in CRR, ban on export of certain essential commodities and removal of import duties, would take 2-3 months to show results.

Private sector Axis Bank's Chief Financial Officer Partha Mukherjee said that the present high inflation "doesn't send any dangerous signals to both, bankers and borrowers."

"There is enough liquidity in the system and I do not think the high inflation will have any telling impact on the borrowers...I believe rates may come down in 2-3 months, when inflation is likely to ease to 6 per cent," he said.

Senior bankers like State Bank Chairman, OP Bhatt, and ICICI Bank's Managing Director & CEO, K V Kamath, had recently said that interest rates would stay stable in the short-term.

Finance Minister P Chidamabarm today said the Government was prepared to take additional administrative steps to contain inflation "if and when it is necessary."