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Our Bureau

Mumbai , Jan. 24

BANKS are expected take a decision on increase in lending and deposit rates, following the Reserve Bank of India's move to increase the reverse repo and repo rates by 25 basis points.

The hike in repo rates would lead to an increase in banks' cost of funds, bankers said.

An official of Bank of Baroda said the bank may raise deposit rates, in certain tenors, by 25 basis points. Allahabad Bank also discussed the possible rate hike at its board meeting today.

"The actual rise in rates and when they happen, would depend on competitive forces," said Mr Sudhir Joshi, Treasurer, HDFC Bank.

The RBI's move took the bond market by surprise leading to a 60 paise fall in the 10-year benchmark. The 10-year yield, now at 7.21/22 per cent, is expected to harden further by the end of the fiscal, said dealers.

The market had not expected a rate hike and had in fact anticipated a cut in the cash reserve ratio. Dealers who had been holding their positions until the review of the credit policy were selling on Tuesday.

Sensex closes higher: A higher interest rate scenario outlined by RBI did impact banking stocks but the BSE-Sensex and S&P CNX Nifty ended higher on Tuesday. BSE-30 closed 85.02 points higher at 9549.92 points and the Nifty by 23.95 points at 2,908 points.

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