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Bond yields rise, upward pressure on rates seen

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  • Significantly, banks are yet to match the cut in key policy rates effected by the RBI since September 2008. The RBI and the government have been asking banks to bring down interest rates further, but stuck with high cost of funds, banks were rather reluctant in transmitting the reduction to the customers. Finance minister Pranab Mukherjee last week complained that the reduction in key rates by RBI was not getting adequately reflected in the reduction of prime lending rates by banks. Bankers admit that interest rates will still fall in the near term, but could remain high in the long-term. Bankers are worried about the high government borrowings — a major factor preventing a speedy decline in interest rates.

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