Interest rates in the economy are expected to decline, as growth slows and inflation peters off. The Reserve Bank of India officials will meet in April to decide on a repo rate cut, which should signal the beginning of lower interest rates.
The RBI uses the repo rate tool to largely determine the direction of interest rates. It has increased interest rates by 13 times in the last two years to combat inflation.
However, inflation in the economy has dropped. Which means the RBI will look at the possibility of cutting rates in April. Also, high interests in the economy have adversely affected growth, which has prompted many in the industry to call for a reduction in interest rates.
GDP growth for the 2011-2012 is expected to be around 6.9%, as against 8.1% in the previous year, prompting the Reserve Bank of India (RBI) to cut rates. Some banks have already cut their base rates, while State Bank of India has reduced its rates on educational loans by a full per centage point, much before an action on the part of the RBI.
While loans rates are expected to reduce, domestic and NRE deposit rates have begun trending higher. This is on account of the severe liquidity constraints in the banking system.