Bond Prices Up On Soft Rates Talk

Union minister of state for finance Anandrao Adsul today said interest rates, including the benchmark bank rate, should come down in line with soft global interest rates to bring down the overall costs in the economy.

A soft interest rate regime will help revive the sagging growth in the industrial and other sectors, he said on the sidelines of a banking seminar organised by the Federation of Indian Chambers of Commerce and Industry (Ficci).

The minister's comments had its impact on government securities with prices going up and yields coming down. The 10-year benchmark 7.40 per cent 2012 bond was quoted at 7.17 percent, down from the morning's 7.20 per cent and Monday's 7.19 per cent. Prices across maturities went up following the minister's comments.

The interest rates, including the bank rate, should be reduced further to provide "adequate and cost effective" credit to the industry and customers, Adsul said. The rates should be cut through a "step-by-step" process, he said.

Asked whether the central bank should reduce bank rate in its forthcoming review of monetary and credit policy in October, the minister said "this would depend on the policy and prevailing circumstances".

Earlier in his inaugural speech, Adsul, who handles banking and insurance portfolio in the finance ministry, expressed concern that the average credit-deposit (CD) ratio of the banking system was low at around 50 per cent against the ideal ratio of 60-65 per cent.