Hyderabad, Sep 17 - Interests rates may marginally increase towards the end of the current fiscal as the economic situation is improving and demand is picking up, Prime Minister's Economic Advisory Council Chairman C. Rangarajan said here Thursday.

'The interest rates may harden a little bit, not very much, towards the end of the fiscal,' he told reporters on the sidelines of a conference on the global economic meltdown.

The credit offtake has shown some signs of recovery, Rangarajan said, adding: 'As the economy picks up there will be greater demand. I am sure the banking system has enough liquidity with it to lend more.'

The former governor of the Reserve Bank of India (RBI), however, does not foresee the apex bank immediately withdrawing its accommodative policy.

'We need to have definite signs of recovery. Only after the economy recovers we can think in terms of withdrawing. It should not be premature. As the signs of recovery become very definite, then they can think of it,' he said.

Asked what RBI should do in the current scenario, Rangarajan said it should watch the situation and ensure that there was adequate liquidity in the system so that more credit could be made available.