Interest rates may not move up: Nandkumar Surti

Nandkumar Surti, Chief Investment Officer, JP Morgan Asset Management explains to Virendra Verma the reasons why banks may not raise interest rates, and shares his optimism about the Indian markets.

The bond yield is at around 8 per cent. Does it mean that interest rates will go up?

I do not think that interest rates will go up due to bond yields. The rise in the bond yield has more to do with the government’s the huge borrowing programme. I think bond yields could rise up to 8.5 per cent in the next few months, but the overall interest rates would not move up.

Why do you say that interest rates will not rise?

Banks have enough liquidity as seen in the daily surplus parked by the banks with the central bank and there is no strong credit demand. Also, decoding recent RBI comments, we believe that there will be adequate liquidity in the system to meet the government borrowing programme as well as the credit requirement of the economy. So the case for interest rates moving up looks highly unlikely.

The Reserve Bank of India increased the CRR in the last policy statement. Do you think the central bank would raise the CRR further?

We expect the RBI to raise CRR/Reverse Repo Rate/Repo Rate up to 100 basis points in CY2010. Despite this I do not think that interest rates will rise as the demand is still not there for credit.

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