Interest rate cycles has peaked: Goldman

With tightening in liquidity condition and expected decline in the inflation by early 2009, there is only a remote possibility of further hike in interest rate by the Reserve Bank, the US-based investment banker Goldman Sachs said in a report.     

"We think that the interest rate cycle has peaked. With commodity prices coming off, clear signs of demand slowing, and our expectations that inflation will fall significantly in early-2009, the case for raising rates has weakened considerably," the report said.     

Further, given the current global environment of tight liquidity and the central banks move last week to ease liquidity conditions, any further cash reserve ratio (CRR) hike is firmly ruled out, it said.     

 

Tight liquidity in a slowing growth environment, it said, suggests that the central bank may use tools such as the statutory liquidity ratio (SLR) and the CRR to ease liquidity rather than to tighten it.     

The rate cut is likely to happen in the January-March quarter of the current fiscal.     

The report said, as the macro concern shifts from high inflation to falling growth, the next move by the central bank would be to cut repo rates in the first quarter of 2009.     

"Any earlier cut in interest rates is unlikely, in our view, as we expect inflation to remain in double digits through 2008," it said.