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Bankers say RBI may not raise lending rates

Bankers say RBI may not raise lending rates
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First Published: Wed, Jul 18 2007. 12 32 AM IST
Updated: Wed, Jul 18 2007. 12 32 AM IST
Mumbai: Indian firms are expected to step up fund-raising this week as the central bank is widely expected to leave rates unchanged in its policy review on 31 July, merchant bankers said.
A Reuters poll of 11 economists last week showed the central bank was expected to hold its key rates steady at its 31 July policy review.
“Steady rates would bring bond yields down and also narrow spreads between sovereign and corporate bonds,” the merchant banking head with a private bank said.
Traders said ample cash supplies in the banking system and expectations of inflation remaining within the central bank’s comfort zone have also helped sentiment for corporate bonds. Cash supplies have risen mainly because of the central bank’s intervention in the currency market to check the rupee’s rise.
Data on Monday showed the Reserve Bank of India bought $4.4 billion in May, taking its intervention since the start of November 2006 to $28.4 billion.
India’s wholesale price inflation was at 4.27% in the 12 months to 30 June, down from a two-year high of 6.7% in January and within the central bank’s medium-term target of 4.0-4.5%.
State-run Bank of India raised Rs400 crore through a perpetual bond sale, which opened and closed on Monday. Punjab National Bank sold perpetual bonds worth Rs500 crore last week.
State-run Bank of Maharashtra raised Rs200 crore via an Upper Tier II bond issue, which opened last week.
On Monday, state-run refiner Indian Oil Corp. (IOC) sold oil bonds worth Rs2,850 crore. The government issued IOC these bonds to compensate it for selling retail fuel below market prices.
The yield on Reuters’ benchmark five-year corporate paper was at 9.35% on Tuesday, lower than 9.60% a week ago.
The spread between the five-year corporate paper and government debt stood at about 161 basis points, narrower from 187 a week back.
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First Published: Wed, Jul 18 2007. 12 32 AM IST
More Topics: RBI | Bakers | lending rates | Money Matters | Currency |