Financial crisis may pressure interest rates in India: RBI
This week alone, RBI has announced a 1.5-per cent cut in mandatory deposits that banks keep with the central bank, raising expectations of reduction in interest rates by banks.
By PTI |
WASHINGTON: Amid India Inc's expectations of a cut in lending rates, Reserve Bank has said global financial crisis could put upward pressure on domestic interest rates in India.
"This (risk aversion due to the crisis) could, in turn, put some upward pressure on domestic interest rates," RBI Deputy Governor Rakesh Mohan said at IMF-Financial Stability Forum meeting here yesterday.
Domestic investment is largely financed by domestic savings in India, but the corporate sector has in recent years mobilised significant resources from global financial markets for funding--both debt and non-debt--their ambitious investment plans, he said.
The current risk aversion in the international financial markets to emerging market economies could, therefore, have some impact on the Indian corporate sector's ability to raise funds from international sources and thereby, impede some investment growth, Rakesh Mohan said.
Such corporates would, therefore, have to rely relatively more on doemstic sources of financing, including bank credits, which in turn could pressure domestic interest rates, he said.
"Moreover, domestic primary capital market issuances have suffered in the current fiscal year so far in view of the sluggish stock market conditions. Thus, one can expect more demand for bank credit, while non-food credit growth has indeed accelerated in the current year," he said.
This week alone, RBI has announced a 1.5-per cent cut in mandatory deposits that banks keep with the central bank, raising expectations of reduction in interest rates by banks.
"This (risk aversion due to the crisis) could, in turn, put some upward pressure on domestic interest rates," RBI Deputy Governor Rakesh Mohan said at IMF-Financial Stability Forum meeting here yesterday.
Domestic investment is largely financed by domestic savings in India, but the corporate sector has in recent years mobilised significant resources from global financial markets for funding--both debt and non-debt--their ambitious investment plans, he said.
The current risk aversion in the international financial markets to emerging market economies could, therefore, have some impact on the Indian corporate sector's ability to raise funds from international sources and thereby, impede some investment growth, Rakesh Mohan said.
Such corporates would, therefore, have to rely relatively more on doemstic sources of financing, including bank credits, which in turn could pressure domestic interest rates, he said.
"Moreover, domestic primary capital market issuances have suffered in the current fiscal year so far in view of the sluggish stock market conditions. Thus, one can expect more demand for bank credit, while non-food credit growth has indeed accelerated in the current year," he said.
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This week alone, RBI has announced a 1.5-per cent cut in mandatory deposits that banks keep with the central bank, raising expectations of reduction in interest rates by banks.
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