'Market volatility to get reflected in interest rates'

It is tough for bankers to strike a balance while fixing base rates in such challenging market conditions

The markets are likely to stay volatile in the short term and that would be reflected in interest rate movements, Bank of Baroda Chairman and Managing Director S S Mundra said on Thursday.

"It would be better if we learn to live with market volatility. Both domestic and global factors in consort are responsible for this volatility," he said.

Mundra said in these challenging market conditions, it was tough for bankers to strike a balance while fixing base rates.

"If we reduce interest rates, then our depositors get hit. If we would try to appease both the sets of consumers, our profitability gets impacted," he said while reminding that banks were commercial entities.

Commenting on liquidity, he said the domestic liquidity situation was comfortable.

"In the recent monetary policy review, the Reserve Bank of India had also pressed the pause button on policy rates. I am confident that vegetable prices would further soften in the near future and ease inflation," he said.

On the $10-billion reduction in bond purchases by the US' Federal Reserve a month ago, Mundra said it would not have any major impact on Indian markets.

"If the tapering decision had been taken earlier, it would have impacted Indian markets. Now, the domestic markets have matured and I do not foresee much impact," he said.

Besides, he claimed international liquidity levels were good and there were only a handful of profitable destinations globally to park money.

Mundra was in town to inaugurate a loan awareness campaign for micro- and small enterprises.