Interest rates to harden, says IMF

International Monetary Fund (IMF) sees interest rates hardening in the near term. Northward movement of interest rates globally will also af...

International Monetary Fund (IMF) sees interest rates hardening in the near term. Northward movement of interest rates globally will also affect rates in India, said IMF chief economist Dr Raghuram Rajan.

Dr Rajan, who hails from Chennai and is currently economic counsellor and director, research department, IMF, argued that economic recovery in the US is putting pressure on interest rates globally. As India cannot remain oblivious to what is happening elsewhere, it will also feel the heat. Moreover, he added, a likely pick up in private sector investment will add to demand for funds by corporates.

Interest rates in India have been constantly falling for the past several years on account of increased supply and low demand of funds. State Bank of India’s benchmark prime lending rate (BPLR) has gradually come down from 12 per cent in 2001 to about 10.25 per cent.

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Money supply has also been fuelled by continuous inflow of foreign exchange. The foreign exchange reserves crossed the $100-billion mark in December 2003 and continue to grow.

Dr Rajan has suggested that India should take advantage of high reserves to lower tariff walls, further liberalise trade regime and provide more freedom to Indian companies to invest abroad. He also wants India to set a deadline for making rupee convertible.

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