New Delhi: Ahead of Reserve Bank of India's (RBI) slack season Credit and Monetary Policy, Life Insurance Corporation (LIC), one of the biggest players in the financial sector, today (May 1, 2004) said there were expectations that interest rates could go up marginally.

"We see signs of interest rate hardening and there is a slight increase also," LIC chairman S B Mathur said in New Delhi at an insurance seminar organised by Birla Institute of Management Technology.

Observing that the yields on Government securities had risen to 5.23 per cent during October 2003 as compared to 5.11 per cent in the previous year period, he said, "There was ample liquidity, but market expects interest rate to go up marginally."

At present, interest rates on small savings have been aligned to the movement in the yields from G-secs.

"Again there is a feeling that interest rates will go up," Mathur said. This apprehension comes in the wake of US Federal Reserve chief Alan Greenspan recently indicating that interest rates could go up globally.

Asked if it could affect the returns on Varishta Pension Bima Yojana, he said, "If interest rates go up, then to that extent Government subsidy declines."

Stressing that one has to live in such an environment where interest rates could change in any direction, he said it would thus pose challenge for the investment planners in the mutual fund and the insurance sectors and noted that there were many hedging instruments for mitigating interest risk.

Though Insurance Regulatory and Development Authority (IRDA) has agreed in principle to introduce hedging instruments for the insurance companies, he said, "It is yet to take off."