New Delhi: Unfazed by surging inflation that is putting pressure on deposit and lending rates, Finance Minister P Chidambaram said today (Sep 9, 2004) that interest rates would remain "stable" in the medium term.

"In the medium term, interest rate situation will remain stable. It is my sense of the situation," he said, emphasizing that the interest rates were the domain of RBI (Reserve Bank of India).

Allaying fears of rising interest rates, Chidambaram said, "There is excess liquidity in the system. Banks have been urged to lend."

He said RBI Governor Y V Reddy was the final authority in deciding on the interest rates.

Chidambaram's remarks assume significance as they come weeks before the busy season Credit Policy of RBI in October.

The fear of surge in interest rates surfaced after inflation spiralled up to 4-year high of 8.17 per cent following rise in prices of fuel, steel and essential items.

The speculations on rates firming up also come in the wake of higher credit demand by agriculture and manufacturing in the second half of the fiscal year.

Most of the banks have also ruled out hike in prime lending rates and home loan rates in the near future.

Chief executives of SBI, ICICI Bank, PNB, Canara Bank, Corporation Bank, Indian Overseas Bank, Central Bank of India and Vijaya Bank said they saw no need to hike rates now as there was excess liquidity to the tune of Rs 40,000 crore in the banking system.