Interest rates set to go up,say bankers

chairman

Liquidity is abundant in the system. We expect enough liquidity for FY’11. Our cost of fund has increased by

16 basis points thanks to the beginning of calculation of interest on saving accounts on daily basis. If credit demand picks up,lending rates will be increased. Nearly,70-80 per cent infrastructure finance is done by the commercial banks and they will continue to do that. There is no direct relation between the lending rates and the policy rates. Still,I believe that there is an upward bias on interest rates. Liquidity will be dried up now once the credit demand picks up in the current fiscal. Hence interest rates are set to go up. Interest rate is determined by demand,supply and finally,the cost of funds. As some changes in credit pick-up will take place now,we see some changes in its pricing.

chanda kochhar

MD and CEO

The RBI has reaffirmed its confidence in the growth momentum. The Annual Policy Statement clearly articulates that growth is broad-based and driven by strong domestic fundamentals. Against this backdrop,and the need to anchor inflationary expectations,the process of shift in focus from “managing the crisis” to “managing the recovery” has been carried forward with a calibrated normalising of policy rates. The 25 basis point increases in repo and reverse repo rates and the CRR are broadly in line with market expectations given the strong economic growth and elevated level of inflation. RBI has also articulated as a priority the availability of credit to meet the growth needs of the Indian economy. Thus,the policy statement has balanced the twin objectives of growth and price stability.