Rates have peaked, but hold the bubbly
At last, there's some good news for India Inc. and the middle class. Just ahead of the quarterly review of monetary policy by the Reserve Bank of India (RBI) on July 31, two of India's top bankers feel that interest rates have plateaued out.
HDFC Chairman Deepak Parekh first said that interest rates have peaked. "I don't see any further hikes," he said, but ruled out the possibility of any immediate reduction. Close on the heels of this, came ICICI Bank CEO K.V. Kamath's statement that interest rates are likely to fall soon. Kamath pointed out that inflation is under control and that there is a slowdown in credit offtake across sectors. This coupled with low call rates and strong deposit mobilisation indicates ample liquidity in the system. "All this," said Kamath, "point towards a scaling down of interest rates soon."
Clearly, RBI's key concern area-the rising inflation rate-is showing signs of coming under control. Central bank Governor Y.V. Reddy has gone on record saying that he hopes to contain inflation in the 4-4.5 per cent range over the medium term. At just over 4 per cent now, it is within that comfort zone.
What does it mean for interest rates going forward? Cautions Omkar Goswami, Chairman, Corporate and Economic Research Group, a research and consulting organisation: "The rates will come down, but it'll be a slow process. We've seen in the past that rates go up much faster. For instance, even if the CRR is reduced, rates won't come down as quickly." Other economists agree that while long-term rates may have stabilised, they are unlikely to soften in the immediate future.
Adds Ajit Ranade, Chief Economist, Aditya Birla Group: "Rates are unlikely to go down significantly, largely because the economy still has growth momentum and inflation continues to be a concern due to rising international oil prices."
So, while the scenario is an improvement, you'll have to wait a while before ordering the bubbly.
