The Telegraph
Since 1st March, 1999
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Resting point in interest rate slide

Mumbai, Dec. 7: There is a flicker of hope for depositors. Barring unforeseen circumstances, interest rates may have bottomed out and can rise only marginally.

According to banking analysts, the Reserve Bank has indicated an upward bias in interest rates. In a recent auction, the central bank announced a higher yield of 6.26 per cent for the 25-year government bond from 6.01 per cent.

Banking analysts said the RBI action might have been prompted by the steady rise in the inflation rate.

The annual rate of inflation for the week ended November 22 rose to 5.24 per cent against 5.12 per cent in the previous week and 3.58 per cent in the year-ago period.

Interest rates should at least be 1 per cent higher than the inflation rate to make investments in government bonds attractive, banking analysts said.

If the inflation rate continues to rise in the coming weeks, it will urge banks to re-peg their lending and deposit rates. Inflation is one of the tools that decide interest rates.

In an election year, when the rate of inflation rises while interest rates move southwards, it can be considered as rather insensitive to the needs of the depositors.

The index for food articles group rose by 0.1 per cent to 186.1, from 186.0 for the previous week, due to higher prices of eggs (3 per cent) condiments and spices (2 per cent) and bajra, ragi, fruits and vegetables, wheat and barley (1 per cent each).

The index for non-food articles group rose by 0.1 per cent to 183.2 from 183.0 in the previous week, due to higher prices of sunflower (4 per cent), soyabean (3 per cent), groundnut seed (2 per cent) and copra and safflower (kardi seed) (1 per cent each).

The fuel, power, light and lubricant index remained unchanged at its previous week’s level of 253.6.

The manufacturing index rose 0.2 per cent to 157.1 from 156.8 in the previous week.

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