With a view to anchor the rising risk of inflationary pressure, the central bank of India has raised its key rates repo and reserve repo rate by 25bps each to 5% and 3.5% respectively with immediate effect. While this move, in our view, is in right direction, we do not expect banks to increase their lending rates in the near term. A host of banks including both private sector and public sector banks have already increased their deposit rates recently. However, banks are currently busy meeting their year-end targets. with abundant liquidity, lending rates in our view, are set to rise only in Q2 FY11 and we have factored the same in our FY11 estimates.
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