Last month, the Bank of Korea hiked interest rates for the first time since 2011. The Federal Reserve in the US is almost certain to hike policy rates at its meeting later this month.
In India, there are expectations of an interest rate cut, at a time when the world is tightening its monetary policy by hiking interest rates.
In India, the Monetary Policy Committee (MPC) will meet in the next two days and it is almost certain they will not cut interest rates. Inflation is edging higher and the MPC is likely to take note of the same. Crude Oil price is rising, which has the potential to further stoke inflation. The fiscal deficit has almost reached 100 per cent of the budgeted levels, which would once again push bond yields higher.
India may now be at the end of its rate cutting cycle and in all probability we may see rates being hiked a few months from now. Corporates however would want interest rates cut to spur growth. However, the RBI is unlikely to oblige on December 6 and probably for a long time to come.
For borrowers, if you are looking at taking loans, this maybe the right time, as the probability of interest rates going higher are bright.
State Bank of India and Punjab National Bank have already hiked interest rates on bulk deposits a few days ago. In fact, SBI hiked deposit rates on bulk deposits by a huge 1 per cent. Clearly, liquidity conditions are tightening and interest rates are hardening.
For depositors, especially retired depositors who depend on interest income from fixed income securities for survival, better days maybe ahead. Finally, they may get higher interest rates after years of waiting.