On Monday, Bank of Baroda increased interest rates on fixed deposits for select maturities upwards. The deposit rates for 7-14 days, 15-45 days and 46-90 days have been revised upwards from 4.75% to 5% with effect from March 19, 2012.

Earlier this month Corporation Bank hiked interest rates on 75 days to 12 months deposits to 9.75% for the general public. Similarly, State Bank of Mysore also increased its interest rates on short-term domestic term deposits from March 5, 2012 and so has Central bank of India. Several other banks have hiked rates on FCNR and NRE deposits.

The banking system has been facing severe liquidity issues and hence there has been an upward bias in interest rates on short term maturities.

The Reserve Bank of India it may be recalled cut the CRR requirement for banks earlier this month in a move to solve the liquidity problems in the banking system. Banks have been borrowing large sums of money from the RBI due to the severe liquidity problems they have been facing.

Interest rates are expected to remain at elevated levels at least until the RBI decides to cut repo rates.

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