Interest rates to come down by 1% in 3-6 months: Kamath

Every hard step has some pain, which explains the current scenario, says K V Kamath

Demonetisation of high value notes will have a positive impact on liquidity and will bring down the interest rates by one per cent in the next three-six months, said seasoned banker and New Development Bank (NDB) chief K V Kamath.

“What I am looking at is... good monsoon, inflation coming down, and in the last quarter, there has been a 70-basis point reduction in headline interest rates, and with this (demonetisation), we would see a further drop in interest rates between now and say, three-six months, of another percentage point,” he said.

Welcoming the move to withdraw the notes, Kamath said this in a medium-term, in a year or so, will have a salutary effect on interest rates. He reasoned that it will suck out liquidity from the system, which should have another positive impact on inflation. Unaccounted money coming out of the system will have a positive impact on inflation, he said, adding that the combined impact of all these would lead to at least 1 per cent cut in the interest rate. He added that every hard step has some pain, which explains the current scenario.

Meanwhile, the government has taken various steps to ease pressure, including raising daily withdrawal limit from bank counters and ATMs as well as hiking the amount of old and now defunct currency notes that can be exchanged.