Government to dictate interest rates?
As most borrowers are keenly aware, interest rates have been on the rise lately and buying a home/car is becoming expensive. Most major non-PSU banks (e.g. ICICI, HDFC) have raised rates in tandem with the RBI.
But according to an article today in the Economic Times, “the government has told the country’s leading banks not to rush through a hike in the interest rate on all loans”. Imagine the kind of problems this will spawn:
* Moral hazard for borrowers, who will gravitate towards PSU banks in hopes of lower interest rates, given the government’s interference (subsidy).
* Competitive disadvantage for non-PSU banks, since their loan rates will be less attractive; or if they try to match the PSU banks, their profit margins will suffer.
* Undermine the RBI’s monetary policies - how can the central bank keep credit inflation in check if the government circumvents the RBI’s rate tightening moves?
Yet another ridiculous (politically-driven) idea.
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