All signs point to harder interest rates
With lending and deposit rates being tweaked up by several banks, industry officials say a clearer sign may well be visible in the next couple of months, reports Arun Kumar.india Updated: Jan 02, 2007 22:18 IST
Many indicators are pointing to a hardening of interest rates ahead.With lending and deposit rates being tweaked up by several banks, industry officials say a clearer sign may well be visible in the next couple of months.
Aiming to control inflation, RBI governor YV Reddy indicated last year that credit offtake should be around 20 per cent, but despite a couple of increases in the bank rate, repo and reverse repo rates that signal to banks a need to tighten lending, the offtake rate is hovering around 28 per cent.
After the RBI raised the cash reserve ratio (CRR) by 0.5 percentage pointto 5.25 per cent, the banking system is in a severe liquidity crunch which briefly resulted in a sharp increase in the overnight lending call rate to around 19 per cent last week.
Leading banks have raised their prime lending rate by 0.25 to 0.5 percentage points to 11-11.75 per cent.
"Although, the official lending rates have been increased by 25 to 50 basis points, the actual increase in the lending rates is a minimum ofone percentage point for triple A rated companies,"said the chairman of a leading public sector bank.
Bankers say liquidity will stay tight for three to four months.
"There is liquidity in the system, it all depends how we are going to release them," said Chanda Kochchar, ICICI's deputy managing director.
However, Indian Bank chairman KCChakraborty said rates would soften in the next couple of months. The chairman of another state-owned bank said the government had a Rs 50,000 crore surplus with the RBI, and this meant there was no shortage of liquidity.
"Going forward, interest rates will depend on economic growth, which continues to be strong, inflow of forex reserves, government spending and more importantly the liquidity scenario, which depends upon multiple factors," said Arun Kaul, general manager (Treasury) in Punjab National Bank.
First Published: Jan 02, 2007 20:16 IST