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Real interest rates high, says Jalan

High real interest rates have pushed up costs of Indian companies, but have not impacted the government's market borrowings, the head of the country's central bank said on Monday.

"If you look at the interest rate of 7.5 per cent that the government is paying on a 10-year bond it compares favourably with anywhere in the world," Bimal Jalan, the Reserve Bank of India's chief, told a news conference.

"But if you are a small borrower then you pay 14-15 per cent," he said when asked if real interest rates based on inflationary expectations were high.

"Our real interest rates are high, companies are paying much higher than the real rate of interest," he said, adding the bias toward softer interest rates would continue.

Indian banks charge their prime customers, or blue chip corporates, anywhere between 9 to 13 per cent, depending on the tenor of the loan.

Jalan said the country needed a stable fiscal strategy that did not change frequently.

"We have to move away from large numbers of changes every year in the Budget. A long-term structure of fiscal policy is needed that lays down the path for the next five to seven years which is stable and represents consensus," he added.

On India's economic prospects, Jalan said the country could look forward to a better growth rate in the next financial year 2002-03 (April-March) as the monsoon rains had being favourable.

"Some positive signs in credit offtake in the after-effect of a good monsoon should become evident in the next two-to-three months. The rate of growth (2002-03) should be at least six-to-6.5 per cent," he said.

The economy is estimated to grow 5.4 per cent in the current financial year to end March.

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