Interest rates to be stable: FM

The government is closely watching the movement of prices of five essential items -- steel, cement, sugar, wheat and rice -- besides that of oil in the global market despite inflation dropping to over a two-year low of 3.35 per cent, Finance Minister P Chidambaram said on Friday.

With fall in inflation, Chidambaram also expects interest rates to remain stable in the coming months.

"I don't expect any change (in interest rate) in medium term," he said. RBI had maintained the Bank Rate unchanged at 6 per cent for over two years although reverse repo rate was hiked in April by 0.25 per cent.

Fall in inflation in the last few months have eased the pressure on interest rates. "Inflation is down because the supply side is good and Reserve Bank is doing an adroit management of money supply," Chidambaram said.

While expressing happiness at fall in price level, he chose to be cautious and indicated that there was no reason to be complacent. "One has to be careful and vigilant. We are carefully watching five items -- sugar, wheat, rice, steel and cement," he said.

He also admitted that the upward spiral in global oil prices, which has crossed $63 a barrel was bound to have an adverse impact.

"Crude oil prices is indeed impacting the balance sheets of oil companies. If it does not moderate, it is bound to impact oil companies," he said.

Rise in global crude prices have hiked under-recoveries and losses of oil companies. If domestic oil prices are not adjusted, some oil PSUs may become financially sick in 2006.