The Hindu : Business : Bankers anticipate interest rate hike

Online edition of India's National Newspaper
Tuesday, Sep 14, 2004

Business

Business

Bankers anticipate interest rate hike

By Our Special Correspondent

NEW DELHI, SEPT. 13. With rising inflation and global developments such as hardening of interest rates worldwide and rising oil prices, most bankers are of the view that domestic lending rates too are likely to go up in the near future.

A quick nation-wide survey done by the Federation of Indian Chambers of Commerce and Industry among leading bankers, financial institutions and intermediaries and other market players has found 80 per cent of the respondents of the opinion that there would be an upward shift in lending rates. Among the reasons for the expectation of higher lending rates were factors such as domestic inflation (which has crossed 8.33 per cent) and the hike in international oil prices which are hovering around $43 a barrel.

Incidentally, the United States Federal Reserve has hiked interest rates by 25 basis points and central banks of England, Canada and Australia have followed suit.

There is, however, divergence of opinion about the timing of interest rate hike. While 48 per cent of the respondents to the FICCI survey expect the rates to rise within six months, 37 per cent perceive an imminent rise within the next three months. A majority, about 58 per cent, perceive a 25 basis points increase while 42 per cent feel the rates would be hiked by 50 basis points. Interestingly, those expecting an interest rate increase within the next three months are the ones who feel that the increase could be by 50 basis points while those expecting a rise over the next six months feel that the increase could be by 25 basis points.

There is a small portion of the respondents who feel that the rise could even be 100 basis points.

About 62 per cent of the respondents have also expressed the apprehension that if interest rates rise, the public sector banks would find their balance sheets adversely impacted because of the expected decline in treasury profits.

However, 73 per cent of the private and foreign banks felt that they would be able to accommodate the decline in treasury profits.

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