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No immediate hike in rates, but pressure remains: Bankers

No immediate hike in rates, but pressure remains: Bankers
PTI
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First Published: Tue, Jan 25 2011. 12 57 PM IST
Updated: Tue, Jan 25 2011. 12 57 PM IST
Mumbai: Home, auto and corporate loan rates may not go up immediately, even though the Reserve Bank of India (RBI) on Tuesday raised key short-term policy rates by 25 basis points to check high inflation, bankers said.
The policy rate hike is a signal of rising interest rates, but banks will not rush to hike rates, said Union Bank of India executive director S. C. Kalia.
“There would not be an immediate hike, but there is upward bias on interest rates,” he said.
The RBI today hiked its key short-term lending and borrowing rates by 25 basis points (0.25%) each with immediate effect to tackle high inflation.
The short-term lending (repo) rate now stands at 6.5% and the borrowing (reverse repo) rate at 5.5%.
Oriental Bank of Commerce executive director S. C. Sinha, said, “The policy rate hikes will not result in an immediate increase in lending and borrowing rates of banks as this was already factored in by the market, given high inflationary pressures.”
Sinha, however, added that banks may have to increase the rates in case credit offtake goes up.
Echoing a similar view, Indian Bank executive director V. Ramagopal said banks had anticipated as much as a 50 basis points hike by the RBI, given the inflation situation.
“I don’t think market would react immediately, as in the last 3-4 months, there have been several rounds hikes both in deposit and lending rates,” Ramagopal said.
However, the possibility of short-term deposit rates going up cannot be ruled out, as the RBI has revised the year-end inflation target upward, Ramagopal added.
In its latest policy review, the Reserve Bank warned that inflation is a matter of concern and revised its year-end projection to 7% from 5.5% earlier. However, it maintained its GDP growth forecast at 8.5% for the current fiscal.
Earlier this month, SBI chairman O. P. Bhatt had said, “Conventional wisdom says that there should be at least a 25 basis points hike in interest rate (by RBI).”
With respect to the lenders’ ability to absorb such an increase, Bhatt said, “The market sentiment is such that a 25-50 basis points (hike), it can absorb.”
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First Published: Tue, Jan 25 2011. 12 57 PM IST
More Topics: RBI | Loans | Auto loan | Interest rates | Repo rate |