Interest rates to rise in the Q4 of 2009-10 by up to 50 bps

NEW DELHI: Interest rates are likely to rise in the last quarter of this fiscal by up to 50 basis points as bond yields may go up and RBI may tighten money supply to rein in inflation, which is likely to be fuelled as food prices could move upwards, according to IDBI Gilts.

"...There has not been fundamental change in the economy. Despite that, the yields on the government papers have hardened in the range of 30-55 bps in the last one-and-half months and if this is the trend... then interest rate will rise by 25-50 bps from December to March," IDBI Gilt Managing Director & CEO G A Tadas said.

The bond yield may have hardened due to the government's high borrowing target in the current fiscal.

The government's borrowing target stands at Rs 4.51 lakh crore for 2009-10, with 66 per cent of the borrowing in the first six months.

He added that in case of failure of agriculture due to drought-like situation in the country food prices would rise, which could lead to inflationary pressures in the coming months.

Agriculture Minister Sharad Pawar has described the situation in 246 districts in 10 states as "grim" due to scanty rainfall.