State Bank of India on Monday ruled out any immediate hike in lending rates amid fears of a rise in interest rates in the economy due to surge in inflation.

"I am an advocate of stable rates. The short-term outlook for lending rates is absolutely stable," SBI chairman A K Purwar said after meeting Finance Minister P Chidambaram in New Delhi.

SBI hikes fixed rates on home loans

SBI gives loans to its prime customers at 10.25 per cent while other banks have benchmark PLRs at 10.50-11.50 per cent.

Market fears a hike in lending rates as the yields on government bonds have gone up substantially in the last few weeks on account of the spiralling inflation, now at 7.94 per cent.

However, most of the bankers are of the view that there is no need for revising the lending rates in the short term because of the excess liquidity of about Rs 45,000 crore (Rs 450 billion) in the banking system.

But bankers expect that interest rates may go up after September once the demand for credit from agriculture and industry picks up, tapering off the present excess liquidity.

On the medium term outlook on lending rates, Purwar did not like to hazard a guess. On housing loans rates, he said SBI has hiked the penalty rate by 0.25-0.50 per cent for switching over to fixed rates from floating.