The Reserve Bank Governor D Subbarao admitted that interest rates are not falling because the government is unable to bring down the small savings rates in an election year. Lending rates have come down, but not as much as warranted by the policy rates. There are some issues that can be addressed by the new government such as the adjustment on small savings. Small savings and bank rates have to be comparable, Subbarao said.
The government keeps the small savings rates at 8 per cent which becomes the floor on deposit rates, as bankers fear going below this rate will lead to losing deposits. That''s why the lending rates refuse to fall even though there was cut in policy rates by the RBI.
Regarding more monetary and fiscal stimulus, Subbarao was cautious hinting that the easy promises of more fiscal stimulus being doled out by political parties may fade under the governance pressures. You have to keep in mind, the long term impact of policies as Milton Freidman once said there is nothing more permanent than temporary government policies, Subbarao said.
The government keeps the small savings rates at 8 per cent which becomes the floor on deposit rates, as bankers fear going below this rate will lead to losing deposits. That''s why the lending rates refuse to fall even though there was cut in policy rates by the RBI.
Regarding more monetary and fiscal stimulus, Subbarao was cautious hinting that the easy promises of more fiscal stimulus being doled out by political parties may fade under the governance pressures. You have to keep in mind, the long term impact of policies as Milton Freidman once said there is nothing more permanent than temporary government policies, Subbarao said.
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