INTEREST RATE

And

ITS IMPACT
By :- Kamal Kant Soni
INMANTEC, GHAZIABAD

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 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

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 Causes of INTEREST RATE

Deferred consumption

Inflationary expectations

Alternative investments

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 Causes cont…

Risks of investment

Taxes

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 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

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 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
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 Why Interest Rate

To control the INFLATION

To control the MONEY SUPPLY

To attract people toward GOVT.

SECURITY

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 Why Interest Rate

To boost the MONEY SUPPLY

To maintain the INFLATION RATE

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 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

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 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

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 Interest rate v/s inflation

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 Interest rate v/s India INC.

Interest cost for 302 BSE 500 Co’s, excluding banks

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THANK YOU