December 06, 2020

Interest rates: What about the savers?

In this piece for the New Indian Express, Shankkar Aiyar  discusses how parking the cost of making money cheaper on savers affects the future plans of millions depending on interest income.


"Even though policy rates slid from 8 per cent in 2014 to 4 per cent in 2020, the weighted average lending rates for borrowers, as per RBI data, is still above 9.5 per cent for most borrowers — thanks to lazy banking. The story for retail borrowers is not very different for home loans or for student loans hovering between 7 and 9 per cent. The tragic irony is that borrowers continue to languish betwixt the optics of cheap money and the reality of rates. For sure the lower rates have afforded systemic stability during the pandemic — given the possible consequences of known unknowns, of moratoriums, restructuring et al. There is also the scent of optimism about recovery — buoyed to a large extent by GST collections, stock market indices, high frequency data and company results. 


However, while the popular buzz is about a V-shape recovery, and that may be validated statistically, the political economy is headed for K-shape recovery. The big gains in corporate results are more about margins with the large entities gaining and the small and medium enterprises as also the informal sector at the cusp of the two legs of the alphabet K."


Read the full article here.

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