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Fixed deposit rates likely to go up
Published on 8 Nov. 2009 10:55 PM IST
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Though the Reserve Bank of India (RBI’s) recent credit policy didn’t have much for the markets to cheer, there are indications of a rising interest rate regime which should be good news for those relying on fixed deposits. The central bank has indicated that rates could tighten up in the coming days and the real impact could be felt in the first quarter of the next year. The government’s aggressive borrowing has to a great extent stalled the fall and this is reflected in the poor performance of income funds. As many would have noticed, the lack of fall or even the steady rise in long-term paper rates has changed the performance of income funds. The picture is unlikely to change in the near term with the RBI too indicating hardening of rates. As a result, tough times are likely to continue for those invested in income funds in the recent times. But the rising rate is always good news for those looking at bank deposits. If you are on the borrowing side, the future scenario is not very comforting as rising rates will once again push up the borrowing costs. The immediate impact would be on products like personal loans and car loans though the latter might get relief from manufactures. The change in fortunes of the auto sector has once again revived hopes for the sector in general, and increased competition in the passenger car segment could push OEMs to offer discounts. Such discounts could come in the form of subsidised interest rates as seen during boom times. However, the same can’t be said of the two-wheeler segment as the margin pressure is high in this segment. With the loan ticket size too being small the competition on the funding side too is restricted to a few players. Home loan borrowers may escape from the pressures of high borrowing costs as the RBI is understood to be looking at supporting the sector. There are reports that banks are likely to increase the allocation towards priority sector lending and property loans could account for a bigger chunk.

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