New Delhi, July 22: Interest rates, including those on housing finance, are unlikely to head northwards against the backdrop of a firming-trend in global rates coupled with rising domestic inflation.

Analysts and bankers said the absence of demand-for-credit in the domestic financial system, which is flush with funds, would negate any rate rise.

“At present, there is too much liquidity in the system which would stem any rise in rates and housing loans are part of the overall system,” said Rajiv Madhok, general manager, international division of state-run Oriental Bank of Commerce.

A boom in construction activity coupled with attractive finance schemes and three-decade low interest rates at 7.5 per cent fed a lending boom in a rapidly expanding economy.

“In the short-term period, over the next six months we do not see a hike in interest rates,” said Rajiv Sabharwal, chief operating officer of industry-leader ICICI Home Finance, which accounted for advances of Rs 13,278 crore in the past year. “However, the requirement of fixed-rate loan has increased. But floating-rate loan, which is about 50 basis points less than fixed-rate, still contributes to about 80 per cent of the firm's total advances," he added.

In the monetary policy presented in April, the Reserve Bank (RBI) left its benchmark bank rate, used by banks to price loans, steady at a three-decade low of 6 per cent. The rate was last lowered by 25 basis points in April 2003. The short-term repo rate was also kept unchanged at 4.5 per cent. This rate was last cut in August 2003.

Of late, there has been speculation that the RBI would move away from the soft interest regime, partly on high crude oil prices and partly on an expected rise in US interest rates.

“The appetite for corporate funds is not picking up so the general interest rates would remain at this level. In the home loan market there is too much competitive pressure for any rise," said P. K. Choudhury, managing director of rating agency Icra.

“The cost of funds has gone down due to the contribution of current account going-up on the total liability portfolio, which is helping us improve our profit margins,” explained Sabharwal.