Sunday, November 23, 2008

High Bank Interest Rates

Either I have not understood economics - which is more likely - or nobody has paid attention to this.
Every public sector bank in India is offering 11% - 11.5% interest rate on long term deposit (starting from 1 year). This, of course, makes sense for the banks, given the volatility of the markets and reduced confidence in multinational banks. More funds are likely to flow into the bank coffers.
But doesn't this also result in money getting siphoned off from the market? Now that deflationary conditions hover around our collective heads? Besides, how are banks going to show any profits? Banks are not lending money to the common man.
Ok! I get it. They are perhaps lending money at a very high rate to the businesses citing the current financial crisis and the banks can afford a high interest on term-loans.
A puzzle then: RBI has been announcing various monetary measures to release funds in the market. I haven't see much of that benefit being passed to the common man.

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