IDBI Gilts stated that as bond yields may go up and RBI may tighten money supply to rein in inflation, interest rates are likely to rise in the last quarter of this fiscal by up to 50 basis points, which is likely to be fuelled as food prices could move upwards. Additionally, it said that there has not been fundamental change in the economy and in spite of that, the yields on the government papers have hardened due to the government''s high borrowing target in the current fiscal in the range of 30-55 bps in the last one-and-half months and if this is the trend, then interest rate will rise by 25-50 bps from December to March.
However, it said that the government''s borrowing target stands at Rs 4.51 lakh crore for 2009-10, with 66% of the borrowing in the first six months and added that in case of failure of agriculture due to drought-like situation in the country food prices would rise, which could lead to inflationary pressures in the coming months.
Moreover, the RBI might tighten its monetary policy and thus the banks will have to respond by raising interest rates and this would be reversal of RBI''s soft money supply policy since global financial crisis deepened in the middle of September 2008.
However, it said that the government''s borrowing target stands at Rs 4.51 lakh crore for 2009-10, with 66% of the borrowing in the first six months and added that in case of failure of agriculture due to drought-like situation in the country food prices would rise, which could lead to inflationary pressures in the coming months.
Moreover, the RBI might tighten its monetary policy and thus the banks will have to respond by raising interest rates and this would be reversal of RBI''s soft money supply policy since global financial crisis deepened in the middle of September 2008.
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