Reduction in interest rates only after March

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Borrowers may see a softening in interest rates after March if the Reserve Bank keeps all key rates unchanged in the coming policy review later this month, say bankers.

"We expect the Reserve Bank policy to be stable in the third quarter review with no major change in key rates," Bank of Baroda Executive Director V Sanathanaraman.

Finance Minster P Chidambaram had said that he would like to see public sector banks to reduce interest rates, it will be difficult to reduce it before March due to year-end considerations, he indicated.

Bankers feel the reduction will be put off if the apex bank effects another round of hike in the cash reserve ratio (CRR), looking at possible inflationary pressures emanating from high global crude oil and food prices.

Leading housing finance company HDFC Chairman Deepak Parekh expects the interest rates to cool down only by the Q1 (April-June) given the apex bank does not increase CRR.

"Lending rates may fall down by 25 basis points in first quarter of the next fiscal (April-June) if RBI does not hike the CRR rate," Parekh said.

CRR is the amount of cash banks need to park with RBI, which does not pay any interest on such deposits.

The CRR presently is at 7.5 per cent following a 2.5 per cent hike in the last 12 months.