Pressure on interests rate transitory: FM

NEW DELHI: Finance Ministry said on Sunday the pressure on interest rate was "transitory and a short-term phenomenon" due to global factors.

"Pressure (on interest rates) to the extent that there is pressure globally. But this is only a transitory phenomenon. It is short term," said, Banking Secretary Vinod Rai.

Indicating that the rates are not likely to go northward in the long run, he said public sector banks are taking long term view of interest rates and they do not find any pressure.

He attributed the hike in home loan rates to the Reserve Bank's decision to increase reverse repo rate by 25 basis points, besides pick up in industrial and manufacturing activities.

"When you have the hike of reverse repo or repo rates, then it has backward fallback on interest rates," the Banking Secretary said.

The observation came ahead of quarterly review of the monetary policy by the Reserve Bank, which is widely expected by analysts to hike reverse repo and repo rates following hike in benchmark interest rates by the US Federal Reserve and Bank of Japan by 0.25 per cent each.

Pointing out that banks also take a conscious decision, he said, "at one point of time, when they have sufficient liquidity, they say let us push it in the retail segment. When they now find that there is demand in manufacturing and industry, they are drawing from there (retail) and lending it there (industry)." the Banking Secretary said.

This way, banks prioritise their lending, he said.

To a question, he said it would not lead to scarcity of credit to the housing and other retail sectors.