Let’s not play the interest rate game
Let’s not play the interest rate game: Low rates have fuelled debt and speculation worldwide. Why compromise our savings by doing the same?
M G Warrier
INTEREST RATES GAME
An excellent analysis covering all major aspects of lending and borrowing rates. Just for taking the debate forward, one may add a couple of related issues. In India, deposit rates are low and borrowing rates are high. This is because, financial intermediaries including banks are by habit used to a high net interest margin. Till Rajan era in RBI, this almost went unnoticed. These margins have had an impact on the health of the financial system similar to the one obesity has on an individual’s overall health. Not clear? The losses incurred due to careless management of funds and inadequate appraisal before loans were sanctioned were absorbed by appropriating the high margins. Government which is a big borrower so far did not feel the pinch because there was a catchment area comprising banks (SLR requirement) and statutory bodies (directed investment in G-Secs). Professionalism and linking to market need to be equally applicable to management of government’s finances also.
M G Warrier