The RBI has tried to curb inflation, which is going strong despite the measures taken. And 'the core of its recent credit policy hiked interest rates again. The RBI has raised short-term lending (repo) rate by 25 basis points to 8.25 % and short-term loans (reverse repo) interest rate moves by a similar proportion of 7.25 % .

Thereafter, the rate of interest under the Permanent Mechanism of marginal banks, the additional borrowing window, rose to 9.25 % % of the last nine percent. This is the 12th time in March 2010 that the RBI has raised interest rates to control inflation, which is currently in power for more than nine percent of the brand.

Returning long-term deposit interest rates, what will happen this time is the question many are asking? As before, the interest in long-term deposits will rise again? It seems unlikely, say most of the bankers. The recent interest rates may not lead to an increase in fixed deposit interest rates again.

The reason is banks are flush with funds. There is ample liquidity in the system. Drawdown is not high. This is mainly due to the fact that high interest rates. Interest rates combined with the recent economic crisis has reduced demand for funds.

Secondly, this time, banks have no intention of increasing their lending rates. It is due to weak demand for funds. As the demand for funds has declined, banks do not contemplate in passing higher costs for borrowers has increased. Any increase in interest rates between the interest rate will affect the bottom line of banks in the negative, because demand for funds will go lower. Therefore, lending rates are not proposed to increase deposit rates will not be a new increase.

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Third, as mentioned above, the objective of the projected growth of the economy is 7.5 %. With a slowdown in economic activity, the need for new deposits of banks is not much. Thus, banks have little incentive to mobilize additional deposits. Will mobilize more deposits if they believe there will be a demand for funds so they can earn interest on loans and pay interest on their loans.

If there is a recession, which will lead to a decrease in credit collection, as well, reinforcing the fact that banks can not be aggressive in their fundraising activities.

At the same time, it should be noted that the current interest rates can continue. It is not expected to go down in the near future. They remain stable for some time, at least in the short term. So you can lock-in current levels of interest rates for higher yields. Especially true given the current state of the stock markets turn more volatile every day.

Source: [ET]