Interest Rate & Its Effect
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INTEREST RATE And ITS IMPACT By :- Kamal Kant Soni INMANTEC, GHAZIABAD ©
INTEREST RATE vRate at which RBI lend and borrow the money to the other bank vRepo Rate – RBI lend money to other banks vReverse Repo Rate – RBI borrow
©
Causes of INTEREST RATE Deferred consumption Inflationary expectations Alternative investments
©
Causes cont… Risks of investment Taxes
©
Real v/s Nominal Interest Rates Nominal interest rate is the amount, in money terms, of interest payable. Exp. – Deposit 100 Rs. In bank at 8% P.A. After 1 year take 108 Rs. from bank ©
Real Interest Rate Real interest rate, which measures the purchasing power of interest receipts Calculated by adjusting the nominal rate charged to take inflation into account If inflation = 8%, Interest rate = 9% Deposit 100 Rs. But in real, we earning only 1% int. on investment ©
Why
Interest Rate
To control the INFLATION To control the MONEY SUPPLY To attract people toward GOVT. SECURITY
©
Why
Interest Rate
To boost the MONEY SUPPLY To maintain the INFLATION RATE
©
Effect of
in IR
Both, DIRECT & INDIRECT IMPACT Don’t have an immediate impact on real economy but later on it has a massive impact in economy More expensive for banks to borrow
©
©
©
Effect of
in IR
Lower Cost of Credit Encourage capital spending, resulting increase business profitability Improve govt. finance by lower COC Discourage investment in Govt. Security ©
Interest rate v/s inflation
©
Interest rate v/s India INC.
Interest cost for 302 BSE 500 Co’s, excluding banks ©
THANK YOU
©
INTEREST RATE vRate at which RBI lend and borrow the money to the other bank vRepo Rate – RBI lend money to other banks vReverse Repo Rate – RBI borrow
©
Causes of INTEREST RATE Deferred consumption Inflationary expectations Alternative investments
©
Causes cont… Risks of investment Taxes
©
Real v/s Nominal Interest Rates Nominal interest rate is the amount, in money terms, of interest payable. Exp. – Deposit 100 Rs. In bank at 8% P.A. After 1 year take 108 Rs. from bank ©
Real Interest Rate Real interest rate, which measures the purchasing power of interest receipts Calculated by adjusting the nominal rate charged to take inflation into account If inflation = 8%, Interest rate = 9% Deposit 100 Rs. But in real, we earning only 1% int. on investment ©
Why
Interest Rate
To control the INFLATION To control the MONEY SUPPLY To attract people toward GOVT. SECURITY
©
Why
Interest Rate
To boost the MONEY SUPPLY To maintain the INFLATION RATE
©
Effect of
in IR
Both, DIRECT & INDIRECT IMPACT Don’t have an immediate impact on real economy but later on it has a massive impact in economy More expensive for banks to borrow
©
©
©
Effect of
in IR
Lower Cost of Credit Encourage capital spending, resulting increase business profitability Improve govt. finance by lower COC Discourage investment in Govt. Security ©
Interest rate v/s inflation
©
Interest rate v/s India INC.
Interest cost for 302 BSE 500 Co’s, excluding banks ©
THANK YOU
©
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