SBI defers interest rate hike

While what led to the deferment of the decision at the bank's Asset-Liability Committee (ALCO) meeting today is unclear, SBI Chairman O P Bhatt said in Hyderabad, "We can afford to wait for a week.'' In the evening, he told a news agency that SBI could absorb the 25 basis points increase in repo rate.

On Thursday, Bhatt had told reporters that SBI might raise the prime lending rate (PLR) or alternatively look at increasing the interest rate on certain loans.

"We will wait and watch and take a little time. We want to examine whether we can absorb the repo rate hike. I think we can afford to wait for a week or two. We will deliberate, get the data and then we will look at our strategies," Bhatt said on the sidelines of a seminar.

"The ALCO discussed a range of issues, including the money market situation and interest rates, but decided to defer the decision," an SBI executive said.

Even Union Bank of India, which had earlier said its ALCO would review interest rates next week, is expected to meet a couple of weeks later.

While banks under the finance ministry's ambit may have deferred a decision on raising rates, Jammu & Kashmir Bank was the first to hike its PLR by 100 basis points to 14 per cent today.

A public sector bank chief said banks would wait for a few more days before effecting any interest rate changes. "The increase in the repo rate is an indication that interest rates are going up, but each bank will have to decide on the basis of its cost of funds. A repo rate hike will affect those banks more that have a large repo content," he said.

The yield on the 10-year government bonds shot up to 8.38 per cent in the money market today. The yeild hardened on the back of inflation rising to a seven-year high of 8.75 per cent at the end of May 2008.