With financial year 2007-08 passing by, banks are relieved from the year-end pressure to raise resources for lending. But thanks to high inflation, this may not translate into lower interest rates in the short term for lending as well as
deposits.
Usually, the credit demand is quite lean in the first quarter (April-June) of a financial year and there is consequently less pressure to generate deposits.
In addition, the resource position in the system is comfortable as the government begins spending without having fiscal targets in the immediate sight. Also, state governments step up expenditure during the dry season and these measures create liquidity.
Bankers say the expectation of easing of deposit and lending rates was something that they shared till the first week of March. With inflation now touching a 13-month high of 6.68 per cent, the outlook has changed completely.
In fact, they see signs of hardening of rates, though the final decision will depend on signals that come from the Reserve Bank of India over the next few weeks. The central bank is due to announce its credit policy on April 29.
"RBI's stance in the monetary policy to curb inflation would influence decisions on interest rates," Bank of India Chairman and Managing Director T S Narayanasami said.
Concurring with the trend of hardening rates, Indian Overseas Bank Chairman and Managing Director S A Bhat said banks might adopt a wait-and-watch
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