Interest rates could rise, say bankers

Oct 30 2013, 09:53 IST
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SummaryIn Q2 review of monetary policy, RBI chief Raghuram Rajan increased repo rate by 25 bps.

Although the hike in repo rate has led to fears of a spike in the already high lending rates, bankers are on a wait-and-watch mode before making an assessment on the cost of funds and liquidity needs. However, do not ruled out a hike in lending rates if the cost of funds rises in the coming days.

While HDFC Bank MD Aditya Puri said if the deposit rates were to go up, the lending rates will also follow suit, IOB chairman and MD M Narendra said the cut in MSF rate and increase in the limit of term repo are expected to soften short-term interest rates by bringing down the cost of resources.

In the Q2 review of the monetary policy, RBI chief Raghuram Rajan increased the repo rate by 0.25 per cent, but cut the marginal standing facility by an equal measure. He also doubled the bank’s borrowing limit under longer tenor repo.

“Yes, some rate changes will be expected,” said Arundhati Bhattacharya, chairperson of SBI, but she declined to give a direction in which the changes will pan out. The asset liability committee of every independent bank will look into the matter, she said.

“As the operative rate still continues to be MSF, the increase in repo rate may not have any adverse impact on lending rates,” Narendra said.

Aditya Puri said, “Cost of funds over the last three months have gone up. We are going back to a normalised monetary policy and over a period of time it would come down.”

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