New Delhi: The government will not do anything to disturb the investment boom and expects interest rates to remain at current levels for the rest of the fiscal year ending March 2006, the Finance Minister, P Chidambaram said on Friday.
India is in the throes of strong consumer demand which propelled manufacturing output to expand 8.9 per cent in September prompting many manufacturers to raise credit to increase capacity.
"Banks will maintain current interest rates for productive purposes for the rest of the year. The reason, I say this, is because there is an investment boom," Chidambaram said.
"We should not do anything to dampen investment. I don't think that liquidity is a problem."
The finance minister also said the government will go ahead with its planned market borrowing.
The yield on the popular 7.37 per cent 2014 federal bond moved up to 6.9703 percent, from an early low of 6.9609 and Thursday's close of 6.9648 per cent.
"The comment indicates that interest rates will remain benign until March as the government wants to maintain the ongoing economic growth. This boosted sentiment," said a trader at a primary dealer.
"But the borrowing comment that immediately followed pulled prices lower."
The Central Bank raised its key short-term rate 25 basis points to 5.25 per cent on October 25, warning it would be hard to keep inflation on target without raising rates due to high oil
Chidambaram who met heads of state-run banks urged increased lending to the farm sector and improve banking access to the rural population including the launch of a general credit card for the villagers.
"The banks are discussing to issue general credit card for rural people to end the financial exclusion of a large part of the population," Chidambaram said.
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