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Home, auto interest rates not to go up immediately, say bankers

india Updated: Nov 02, 2010 13:45 IST

Cost of home, auto and corporate loans may not go up immediately, even though the Reserve Bank today raised short-term key policy rates by 25 basis points to check high inflation, bankers said.

"The transmission mechanism between RBI and rest of the financial system does not work very fast. It always works with a time lag," said SBI Chairman O P Bhatt.

"So, whether it (hike by RBI) will raise pressure on the system. Eventually, it will. Whether there would be immediate reaction. Not likely," he said "There would be some banks who would be thinking of raising rates, it would be kicker for them. For other banks it may not be so. So there would be mixed reaction," he added.

RBI on Tuesday hiked its key short-term lending and borrowing rates by 25 basis points (0.25 per cent) each with immediate effect, in view of high inflation. Accordingly, the short term lending (repo) rate stands at 6.25 per cent, and the borrowing (reverse repo) rate at 5.25 per cent.

Indian Bank Executive Director V Ramagopal said banks have already factored in the RBI.

So, there would not be immediate impact of this on the interest rates, he said.

However, if credit offtake picks up and liquidity tightens further, it would certainly lead to higher interest rates, Ramagopal added.

Echoing similar view, Oriental Bank of Commerce Executive Director S C Sinha said, "I don't think there would be increase in interest rates as RBI move was already discounted."

Going forward, interest rate would depend on liquidity situation, Sinha said, adding, RBI is doing its bit to ease liquidity and the position will further improve with government spending and Coal India money coming into system in days to come.

IDBI Bank executive director Sushil Munhot interest rate would remain static for now. Credit growth in the coming days would decide the future course of action by banks.

Some bankers feel that many lenders have already raised rates.

So, even if there is little increase, it would be on case to case basis. RBI rate hike would not have impact on the base rate.

However, Benchmark Prime Lending Rate (BPLR) would come in for a re-look, leading to revision in the portfolio linked to BPLR, Bank of Baroda Executive Director RK Bakshi said.

The base rate revision by banks are due in January next year.