Are Interest Rates Going to Fall?

Today's papers speak of the finance minister stating that the country will maintain a "fairly tight monetary policy". He cited inflation concerns caused by rising fuel prices, rising commodity prices and high demand in China and India.

But if you have hopes of bank deposit rates staying high, you could be disappointed. Thanks to rising cash flows, the high rates that prevailed earlier this year are on their way down. Newspaper reports state that a number of banks, including Corporation Bank, Indian Bank and Punjab National Bank lowered rates this month. A number of private and public banks are planning to follow suit. The reason banks are being cautious in lowering deposit rates is because they will have to do so on the credit side too.

But a clearer picture will emerge on July 31, when the Reserve Bank of India comes out with its monetary policy statement. They have the unenviable task to keeping inflation within acceptable limits and simultaneously prevent the rupee from appreciating too much.

So if you want to block your money in a fixed return instrument, now is the time to do so.