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Interest rates set to harden, say experts

India Inc should brace for higher interest rates in the coming days, feel banking and capital market experts. They believe excess liquidity in the system and rising inflation will pave the way for interest rate hardening.

business Updated: Apr 07, 2010 22:12 IST
HT Correspondent

India Inc should brace for higher interest rates in the coming days, feel banking and capital market experts. They believe excess liquidity in the system and rising inflation will pave the way for interest rate hardening.

In a panel discussion on the future of liquidity and interest rate trajectory, organised by the Federation of Indian Chambers of Commerce and Industry (FICCI), participants agreed that an interest rate hike will suck out excess liquidity and help in controlling inflation. Experts also recommended the utilisation of insurance, provident and pension funds for financing infrastructure.

“Interest rates are expected to go up, given the current scenario of rising inflation. The new financial year will be promising and challenging and we will see volatility in the system,” said Shikha Sharma, managing director of Axis Bank. She said India has funds lying in insurance, provident and pension funds, which can be used for funding infrastructure projects, which need long-term money.

Kalpana Morparia, CEO, JP Morgan, said along with firmer interest rates, the rupee will also strengthen in the short term and the stock market will go up.

“The cost of capital will go up in the country in line with the global trend as governments the world over have started withdrawing excess liquidity. It will not create shortage of liquidity in the system as India has robust household savings,” said Rashesh Shah, chairman of Edelweiss Capital Limited.