In line with the industry trend, State Bank of India (SBI), on Monday, raised its benchmark lending rate by 50 basis points and deposit rates by up to 150 basis points.

While the increase in benchmark prime lending rate to 12.25 per cent will make existing home, auto and corporate loans from the country’s biggest lender dearer, the hike in deposit rates will ensure better returns for deposit-holders.

The decision comes days after Finance Minister Pranab Mukherjee expressed hope that lenders will not raise their interest rates in response to the RBI’s monetary tightening measures last month.

“The bank has revised the benchmark prime lending rate upwards by 50 basis points from 11.75 per cent to 12.25 per cent effective from August 17″ SBI said a filing to Bombay Stock Exchange.

However, for new borrowers, the base rate, which became effective from July 1 this year, stands at 7.5 per cent. The base rate is the minimum lending rate below which loans cannot be offered.

As far as revision in fixed deposit rates is concerned, SBI increased the interest rate by 150 basis points (1.5 per cent) to 4 per cent for term deposits of 15-45 days tenor. The deposit rate increase is the maximum in this slab.

For fixed deposits with a tenor between 181 days and less than one year, the new interest rate will be 6 per cent against the existing 5.25 per cent, while 555-day fixed deposits will attract an interest rate of 7.25 per cent, an increase of 125 basis points. The interest rate on term deposits of between 3 to 5 years tenor will go up by 75 basis points to 7.25 per cent from tomorrow, while interest on the 5-8 years maturity slab has been increased by 25 bps to 7.50 per cent.

Floating fixed deposit

Meanwhile, the bank also announced the launch of a floating fixed deposit product linked to base rates with effect from September 6, 2010. The bank announced launching of floating rate term deposit products linked to the “Base Rate” effective from September 6, 2010″ the bank said in a filing.

This innovative deposit product will not carry a fixed rate, unlike the existing fixed deposit product. The interest rate would change in tandem with the base rate, as and when a revision in the benchmark rate takes place.

For a one-year floating fixed deposit, the interest rate will be 50 basis points lower than the existing base rate, which is currently 7.5 per cent, it said. In the case of a three-year floating term deposit, the interest rate will be 25 basis points lower than the base rate, while for a five-year floating term deposit, the interest rate will be at par with the base rate.

The new deposit product will be introduced from September 16, it said.?? The RBI, in its monetary review last month, raised the short-term borrowing (reverse repo) rate by 50 basis points and lending (repo) rate by 25 basis points to tame inflation.

Following the monetary action, most of the public sector lenders, including Punjab National Bank, Bank of Baroda, Bank of India, Oriental Bank of Commerce and Canara Bank, responded by hiking their BPLRs by up to 50 basis points. At the same time, many banks increased deposit rates as well.

The ECB cut the cost of borrowing in the 15-nation eurozone by a record 0.75 percentage points.

European central banks took unprecedented action Thursday to ward off a looming recession, slashing their benchmark lending rates to boost business investment and household spending.

The ECB cut the cost of borrowing in the 15-nation eurozone by a record 0.75 percentage points to 2.50 percent as the eurozone faced its first recession while the Bank of England returned Britain to World War II levels with a full point reduction to 2.0 percent.

For the ECB, it was also an unprecedented third rate cut in two months, following a coordinated cut with other central banks on October 8 and another reduction in early November.

“The ECB’s 75 basis point interest rate cut comes as a pleasant surprise after recent hints from governing council members that a 50 basis point cut was more likely,” said Jennifer McKeown at consultants Capital Economics.

In Stockholm, the Swedish central bank set the tone early in the day by nearly halving its key rate by 1.75 percentage points to 2.0 percent to “dampen the fall in production and employment” due to the global financial crisis.

Repeated and sharp central bank cuts have failed so far to unfreeze the interbank lending crucial to business that ground to a halt after the US market for high-risk or subprime mortgages collapsed in mid-2007.

ECB officials had suggested last week they did not want to use up all their rate cutting options too quickly in case the recession drags on and markets had accordingly anticipated a half point cut.

In the event, the ECB clearly recognised “that we are not in ordinary times and that they cannot afford to keep the same range of policy moves,” Bank of America economist Gilles Moec said.

The decision signals that “the best course of action is to go fast and deep, probably on the condition that the relaxation will be quickly taken back as soon as the first signs of recovery appear,” Moec added.

“The ECB’s reluctance to cut by more than 75 basis points seems to stem from a desire to keep some ammunition back and also concern that too big a cut could hurt confidence,” said economist Howard Archer at consultants IHS Global Insight.

The ECB still has ample room for manoeuvre with inflation falling from a record 4.0 percent in July to 2.1 percent last month. It is forecast to drop further as oil and food prices decrease.

The bank’s medium term inflation target is just below 2.0 percent.

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Shrugging off investors fears of a double-dip recession and punishing deflation, Federal Reserve Chairman Ben Bernanke predicted that a moderate U.S. economic expansion is likely to continue despite numerous threats to growth.

Testifying before the Senate Banking Committee, Bernanke acknowledged that European debt problems are slowing U.S. growth, as is the protracted slump in the U.S. housing sector. He said mounting federal budget deficits must be addressed, but added that government spending is warranted given the lack of private-sector demand for goods and services.

Bernanke shot down suggestions that his Fed is out of bullets should the economy slide back toward contraction.

“If the recovery seems to be faltering, then we at least need to review our options. We need to think about possibilities. But, broadly speaking, there are a number of things we could consider” he said.

The Fed’s benchmark interest rates, a main lever of the central bank to spur economic activity, have been near zero for the past two years. That’s led some economists to worry that the Fed is running out of options to spark a slumping economy.

Bernanke countered that there are a number of unconventional steps the Fed still could take to stimulate the economy, ranging from resuming purchases of mortgages to reinvesting in securities to issuing a statement that interest rates will remain at zero for a fixed period to provide certainty to investors.

“We have not come to the point where we can tell you precisely what the leading options are” he said, adding that “policy is already quite stimulative. I think we still do have options, but they are not going to be the conventional options.”

Bernanke was blunt about the challenges, and he acknowledged that some government stimulus that powered the expansion in the first half of 2010 is likely to fade.

“Although fiscal policy and inventory restocking will likely be providing less impetus to the recovery than they have in recent quarters, rising demand from households and businesses should help sustain growth” Bernanke said in opening remarks.

He later discounted, when asked directly, the chances of sliding back into recession.

“Our expectation is still for a moderate recovery which will over time bring down the unemployment rate. That’s still our main scenario, that the economy will continue to grow and that private demand will take over as the driver of growth” he said.

Financial markets slumped shortly after Bernanke’s testimony was made public, in part because of his acknowledgement that “the economic outlook remains unusually uncertain” but the thrust of what he said was positive.

Real consumer spending appears to have expanded at about a 2.5% annual rate in the first half of 2010, Bernanke said, with purchases of durable goods “such as large appliances” increasing especially rapidly.

The economic forecast of the Fed’s Open Market Committee (FOMC), which sets the benchmark lending rate that influences borrowing costs across the economy, remains mostly unchanged, he said. Most FOMC members expect the economy to grow at a rate of 3-3.5% this year and 3.5-4.5% in 2011 and 2012, and they anticipate a jobless rate of 7-7.5% by late 2012.

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SBI loans offer affordable interest rates The State Bank of India (SBI) has been in the business for a long time now. In February this year, it came up with a bumper offer for car loan seekers. SBI loan interest rate was slashed from 11.5 per cent to 10 per cent and lenders were also freed from paying the car loan processing fee for an entire year. Personal loan interest rates at SBI are highly versatile. They let the borrower choose between a fixed interest rate and a floating one. In the former case, the interest rate on the loan remains fixed throughout the tenure. But in the case of a floating rate loan, the interest rate need not remain constant. It could decline or rise, depending upon the changes that the Bank’s Medium Term Lending Rate (SBMTLR) goes through.

A striking feature of SBI that makes it stand out among several others is the fact that the interest is levied based on the daily/monthly reducing balance. While others use the annual reducing balance method, SBI offers an advantage to the customer. He does not have to pay interest on the amounts he keeps repaying. The interest is computed only on the loan amount that is presently outstanding. Since, this figure goes down with every EMI, the effective rate of interest is considerably reduced.

Getting the ICICI Advantage

ICICI Bank is one of the top most approached banks, easily India’s second largest lender. ICICI bank loan interest rates have also been significantly lowered keeping in mind the need of the hour. A 50 basis point reduction in the benchmark lending rates is evident from the fall to 15.75 per cent. The floating reference rate, which applies to floating rate retail loans, has dropped to 12.75 per cent. Though the bank owes the reduction to a decrease in the cost of funds, the borrower’s convenience has enhanced manifold.

Loans are now available from ICICI bank at an increased comfort level. This includes personal loans of all types, including for home, car, education or any other. There are also plans that offer a fixed rate of interest for a period of the loan tenure and then switch to the floating rate. Similarly, ICICI bank loan interest rates for cars are not ruled by a uniform, absurd guideline. They vary according to the car model and the tenure of the loan, which is also dependent on the customer and his location.

Sky rocketing interest rates are no longer the obstacle they used to be. There are people who shy away from a loan even when they have the urgent requirement of one, only because they fear the impossible rate of interest. Gone are the days when wicked money lenders in villages would amass land and wealth by trickery and exorbitance. With reliable and helpful banks like ICICI, SBI and many more, getting a personal loan at a reasonable rate of interest is simple for one and all.

Stress test remains significant as it can guage sovereign issues as well as highlight sizable capital need for banks. Speaking to CNBC-TV18, Philip Poole, Global Head-Macro and Investment Strategy of HSBC Global AMC said the key issue at the moment is to raise additional capital. He believes Emerging Markets are still attractive but it is attracting funds lower than last year. However, he remains overweight on emerging markets relative to global markets?? and prefers Brazil, Russia, Korea and mainland markets. Regarding India, Poole remains worried about the inflation situation.

Q: Your expectations from the European bank stress test and what you think might get thrown out?

A: This is an important event. We have seen the euro recovering some ground against the dollar and across currencies. But the stress test is an important element in how people will look at this sovereign related issue in Europe. So, I am expecting to see these tests highlighting the sizable requirement for all banks and capital and the key question then will be how it proceeds.

The authorities are indicating private sector has to take substantial lead in that process, but we are still not clear on the details of what will lie behind the official initiative. So, I think that’s the key issue, how the raising of this additional capital will be performed and how the market takes that.

Q: What about emerging markets (EMs) then because we have been getting good flows, India particularly? How do you assess the fund flow situation from hereon?

A: EMs still attracting funds, at a lower level than we saw last year. But on a net basis, money is coming in again. What is interesting is within the equity space, for example, that money is tending to go into single market funds like India, of course, like Brazil as well rather than into BRIC (Brazil, Russia, India And China) or in to more generic EM funds. Also, I think we are seeing interest in EM currencies. We are seeing interest in corporate bonds in the EM world. So, the fund flows are healthier than they were when we were seeing a month or so ago that correction playing out with risk being taken off the table

Q: At HSBC, which emerging markets are you most overweight on and which ones are you underweight on currently?

A: We are overweight EMs relative to the developed world, relative to their weight in global markets. That’s the first thing to say. Within that, we like Brazil, Russia, Korea and Asia, we also like the meaner markets, there’s value there. But generally speaking, I think we have got a pretty strong call on EM in this environment.

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Interest rates are the costs for borrowing money. The calculation for an interest rate is a simple expression of interest payments as a percentage of principal. Benchmark interest rates are set by an entities like the Federal Reserve, government, or a bank and are used to peg other consumer and commercial interest rates. These interest rates determine what we owe on mortgages, credit cards, and loans, as well as what we earn on CDs, savings accounts, money market accounts, and checking accounts. MoneyRates.com tracks the latest interest rate news and changes.

The forecast for higher interest rates has been extended as the Federal Reserve remains committed to maintain a policy of ultra-low interest rates. The released minutes from the last meeting of the FOMC suggest that the majority of Fed policy-makers are weighing the risks of economic slowdown as greater than those of inflation. Until economic activity picks up again in the US, it appears the Fed is satisfied keeping the federal funds rate set at 0.25% and the discount rate set at 3.25%. Mortgage rates remain low for home buyers and home owners according to the most recent survey of American lenders from Freddie Mac. The weekly survey released last Thursday indicated that many mortgage rate averages once again are at record lows. The national average on the 30-year fixed rate mortgage was unchanged from the previous week’s level of 4.57%. The national average on the 15-year fixed mortgage decreased slightly, dropping one basis point from 4.07% to 4.06%. Adjustable-rate mortgages indexed to US Treasury yields were mixed this week according to the Freddie Mac survey. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) increased to 3.85 percent and the 1-year Treasury-indexed ARM averaged fell to 3.74 percent. Adjustable rate mortgages tied to the LIBOR index, a common interest rate benchmark, were also slightly higher this week. The biggest catalyst for the record low mortgage rates in the US has been the continued support of the Federal Reserve of the housing market and the strong demand from investors for US Treasuries. Mortgage rates have been attractive enough to homeowners keep lenders busy with refinancings. Homeowners with fixed mortgages over 5.25% or variable-rate mortgages tied to interest-rate indexes have been advised to compare refinancing rates before interest rates increase again from today’s present levels. Check MoneyRates.com for the best mortgage rates and deals.

Short-term US Treasury yields have stayed in a very narrow range for the first half of July. The 90-day T-Bill is currently yielding 0.16% and the one-year T-Bill is yielding 0.27%, nearly unchanged from the yields that they ended with in June. The benchmark 10-year Treasury note yield can react strongly with economic news and releases. Today, the 10-year Treasury note is yielding 3.00%, but in the last 90 days it has ranged from 3.35% to 2.94%. Economists are forecasting that as the US economy picks up steam, that yields on Treasury notes and bonds could increase back over 4.5%. If the yields increase too quickly, investors who own government bond funds could see some loss in value.

Americans with home equity loans and credit cards that are indexed to Treasury yield averages should also be careful to follow the Treasury yield trend. This scenaraio is not likely before 2011, so savers may have a long wait before they see the +3% savings rates that they crave for their CDs, money market accounts, and savings accounts. Check MoneyRates.com daily for the latest interest rate news and forecasts.

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Sweden’s Riksbank raised the main lending rate a quarter-point from a record low as a government stimulus and revived demand for the country’s exports injected momentum into the economic recovery and pushed up house prices.

The world’s oldest central bank raised the benchmark seven- day repo rate to 0.5 percent, it said in a statement on its website today. The decision was forecast by 16 of 18 economists surveyed by Bloomberg.

“The cyclical uplift is very strong and growth seems to be fairly organic, encompassing both domestic demand and exports” said Nicola Mai, an economist at JPMorgan Chase & Co. in London, before the announcement. “They don’t want to end up in a situation that we have seen in many countries over the past couple of decades in which the housing market gets overheated and there is a massive correction.”

The Nordic region’s biggest economy grew more than economists expected at the start of the year and data revisions showed it exited recession in the second quarter of 2009. Unemployment dropped and industrial production expanded more than anticipated last quarter. House prices and household borrowing also grew.

Consumer prices, adjusted for mortgage payments, increased an annual 1.2 percent in May, compared with the Riksbank’s inflation target of 2 percent.

Recovery Road

“The economy is on the road to recovery” the National Institute of Economic Research said on June 23, forecasting 3.7 percent growth this year after last year’s 5.1 percent slump – the worst since World War II. “The turning point has been passed with the aid of an expansionary economic policy and a rapid upturn in demand for Swedish exports of goods.”

Gross domestic product expanded a quarterly 1.4 percent in the first three months of the year, Statistics Sweden said on May 28 as it revised contractions in the last two quarters of 2009 to show growth in both periods.

The government will spend 1.2 percent of GDP this year to stimulate growth before elections in September. Measures include a fourth income tax cut since 2006, infrastructure spending and programs to support the unemployed.

Retail sales rose an annual 2.7 percent in May, beating economists predictions for a 0.3 percent increase. Unemployment fell to 8.8 percent from 9.5 percent and exports, which account for about half of Swedish output, increased for a sixth month.

“Industrial firms forecast a continued increase in both output and employment for the next few months” NIER said on June 23 as manufacturing confidence rose to its highest level in three years in June. Swedish companies representing most major industries are enjoying a return to growth, the Riksbank said in a June 17 report showing rising showed production and orders.

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