Image source https://pixabay.com/en/zero-percent-statistic-money-sign-706875/
Our outgoing governor of Reserve Bank of India did nothing more than reducing interest rates which has caused inflation to some extent. If India survived during the global recession it was due to Indians’ habits of saving and spending lesser. Now with loans available at low rates the commodities will sell but at whose cost? At the cost of depositor paid almost 2% lesser within last two years.
These are the type of people you see less and less and only few will understand that you need to focus on your dreams. Regardless, we need to take courage to walk the lonely road and face the life with more courage. I am not in favor of everything available at subsidized rate or at the cost of others.
If you want to reduce rate of interest like developed countries first give your citizens the same benefits which developed countries are giving to their citizens. You are killing the interests of small depositors to give benefit to people who are already getting good salaries and to government employees.
Cutting interest rates is no good for this country as it will only increase inflation and consumer culture. The depositor will feel cheated and find saving schemes useless. Raghuram Rajan was being favored by industrialists because they were taking full advantage of low interest rates.
But may I ask the crucial question- what about depositors or who is going to safeguard the interests of the one who is most crucial part of this game? I never borrowed from the banks so it hurt me more for the reduced interest I get on my deposits.
Let us keep in mind that banking is not all about giving loans to needy people but it also depends on money deposited by its account holders. If the interest rates would be lower than a certain percentage people would find alternate methods of investment.
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Welcome to the club! In America, if you want to save money and earn money on your money, you don't put it in a savings account. Does India credit unions? In America, we have credit unions and banks. I prefer credit unions. They don't charge you a fee just for breathing!
In any case, inflation has fallen to the lowest in years, while at the same time production is rising, something not many Indians seem to give thanks to the present government (India Reports Upbeat Inflation, Production Data).
This means the real interest rate is quite high in India (Real interest rates are still very high in India: Citi’s Pankaj Vaishlivemint.com). While world markets helped Modi in some sectors (like lower energy prices) it didn't help in other areas (like worsening Greek crisis & poorer world economy) and the monsoon playing a spoilsport due to the el nino.
When the inflation is low, it is best to cut interest rates so that businesses could borrow better and grow the economy. Interest rate may be cut even before the next RBI policy meet: SMC Capital - The Economic Times.
Growth is induced by providing low cost finance to industry. If interest rates on loans are low, banks are compelled to reduce the rates on deposits, too, to maintain the profit margin.
Releasing too much low cost money in the system, increases inflation.
The RBI, thus, is always walking a tight rope between managing inflation and the targeted growth figures.
Investors need to look at alternative avenues of investment, but most of them, come at a certain amount of risk. The money that you cannot afford to lose, is best parked in FDs, even at a low interest rate.