The State Bank of India [Get Quote], the country's largest lender, gave a strong signal of maintaining a status quo on lending rates in the short term, owing to a higher cost of funds.

"There has been a 46-basis point increase in the cost of funds for the bank," SBI Chairman and Managing Director O P Bhatt said in New Delhi on October 27. Bhatt added that the bank would maintain a status quo on lending rates and may review lending and deposit rates after a month.

Further, Bhatt said, "Demand for liquidity in the system is going to peak in the next few weeks."

The Reserve Bank of India's recent measures have been positive on liquidity and it may continue to do so in the future to ensure enough liquidity in the system, he added. "RBI should maintain a positive liquidity in the system so that the interest rates either remain where they are or possibly move downwards," he added.

Bhatt expects interest rates to moderate in coming months. "Interest rates have peaked and should show some moderation in the coming months," he said, referring to inflation, which is moderating, and adequate liquidity with the banking system.

By reducing the repo rate, the rate at which banks borrow from the central bank, by 100 basis points, RBI has signalled a moderation in interest rates. "The upward pressure on interest rate has stopped," he added.

However, he cautioned that the repo rate cut alone may not result in interest rate moderation if the cost of funds is high or there are not enough funds with banks.

He expressed concern over the cost of deposits, especially bulk deposits.  Many banks have raised bulk deposits at 12 per cent-plus earlier this month.