Opinion - Letters to the Editor   

Interest rates

Sir, — I refer to the editorial, "Divergence in interest rates" ( Nov. 11 ). The steep fall in the bank rate from 12 per cent in 1997 to 6 per cent in 2003 has not reflected adequately in lowering the rate of interest for the farm sector and other core sectors such as small-scale industries. More credit at cheaper rates, more performance and more liquidity in the economy are the objectives by which the mechanism of bank rate is operated.

The lowering of the interest rate in the name of reforms has been used only to reduce the interest on deposits. The interest rate on advances range from 8.5 per cent to 10 per cent. The lowering of interest rates has only helped corporate borrowers who have taken the bulk of the credit outflow at the expense of micro-deposit holders/pensioners, etc.

P. Balakrishnan,

Chennai

* * *

Sir, — A few years ago, the RBI said that our bank interest rates on fixed deposits should be equal to our GDP plus inflation rate minus 3 per cent. According to that, the present interest on fixed deposits should be around 7.5 per cent for two years. But banks are continuing to announce cuts. As customers have no other avenue to deposit money without fear, the banks treat them badly.

K.S. Sundararaman,

Chennai

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