No immediate hike in rates, but pressure remains: Bankers

Mumbai, Jan 25 (PTI) Home, auto and corporate loan ratesmay not go up immediately, even though the Reserve Bank todayraised key short-term policy rates by 25 basis points to checkhigh inflation, bankers said.

The policy rate hike is a signal of rising interestrates, but banks will not rush to hike rates, said Union Bankof India Executive Director S C Kalia.

"There would not be an immediate hike, but there isupward bias on interest rates," he said.

The RBI today hiked its key short-term lending andborrowing rates by 25 basis points (0.25 per cent) each withimmediate effect to tackle high inflation.

The short-term lending (repo) rate now stands at 6.5 percent and the borrowing (reverse repo) rate at 5.5 per cent.

Oriental Bank of Commerce Executive Director S C Sinha,said, "The policy rate hikes will not result in an immediateincrease in lending and borrowing rates of banks as this wasalready factored in by the market, given high inflationarypressures."

Sinha, however, added that banks may have to increase therates in case credit offtake goes up.

Echoing a similar view, Indian Bank Executive Director VRamagopal said banks had anticipated as much as a 50 basispoints hike by the RBI, given the inflation situation.

"I don''t think market would react immediately, as in thelast 3-4 months, there has been several rounds hikes both indeposit and lending rates," Ramagopal said.

However, the possibility of short-term deposit ratesgoing up cannot be ruled out, as the RBI has revised theyear-end inflation target upward, Ramagopal added.

In its latest policy review, the Reserve Bank warned thatinflation is a matter of concern and revised its year-endprojection to 7 per cent from 5.5 per cent earlier. However,it maintained its GDP growth forecast at 8.5 per cent for thecurrent fiscal.

Earlier this month, SBI Chairman O P Bhatt had said,"Conventional wisdom says that there should be at least a 25basis points hike in interest rate (by RBI)."

With respect to the lenders'' ability to absorb such anincrease, Bhatt said, "The market sentiment is such that a25-50 basis points (hike), it can absorb." PTI DP ARV