Borrowers, especially those eyeing housing loans in coming months, may not have to worry much as bankers ruled out an immediate hike in interest rates.

However, bankers have cautioned that interest rates may rise from early next year and hence it is advisable to go for fixed rate loan schemes rather than opting for floating rates.

"There is excess liquidity of about Rs 50,000 crore (Rs 500 billion) in the system. Hence, there is no possibility of interest rates hike on personal and housing loans," Corporation Bank Chairman K Cherian Varghese said.

Echoing similar views, UCO Bank Chairman V P Shetty said though there is no chance of interest rates going up in the short term, it may start firming up from January 2005 once the demand for credit from industry and agriculture picks up.

The concern for a possible rate hike comes in the wake of rise in inflation to over 6.5 per cent. There has been surge in yields on 10-year government papers to almost 6.0 per cent and a consequent fall in their prices of bonds.

Banks, which invest a bulk of money in gilts, are under pressure, as most of them fear capital loss due to fall in prices of bonds.

But at the same time they are unwilling to hike rates of both deposits and loans.

Punjab & Sind Bank Chairman V K Chopra said there is still a 'cushion' of about 0.25-0.50 per cent over and above their average lending rates.

So, banks can afford to keep the rates at the present level without taking a hit on their profitability.

Bankers say it would be wiser for customers to go for fixed rate loans now as there is virtually no chance of interest rates coming down further in near future.

At present, housing loans are pegged at about 7-7.5 per cent for five year maturity, while car and personal loans are available at 8.5-14 per cent.

As lending rates have not gone up, so has term deposit rates now at 5.5 per cent for over three-year maturity.

Expecting rates to rise in the next six months, mutual funds are coming up with floating rate debt funds.

A floating rate debt fund can offer higher returns to investors than even bank fixed deposits in a rising interest rate scenario, Standard Chartered Mutual Fund Managing Director Naval Bir Kumar said.

ING Vysya Mutual Fund Managing Director Kavita Hurry said the AMC was also planning to launch a floating rate fund taking advantage of the rising interest rate scenario.

Despite fluctuations in gilt prices and inflation, RBI has kept its benchmark Bank Rate, the rate at which it lends funds to banks, at 6.0 per cent for almost a year.

The last rate revision was in October 2003 when former RBI Governor Bimal Jalan slashed bank rate by 0.25 per cent to 6.0 per cent.

Global markets, however, have seen hike in interest rates following the footsteps of central banks of developed nations like the United States, the United Kingdom and Japan.

Inflation has also firmed up in international market following hike in fuel and commodity prices.