Rishi wrote:We need to immediately drop interest rates … doesn’t mean that we do it in one go … there can be a road map but businesses must know that cost of capital will come down.”
Deposit rates, on the other hand, need to rise, according to Dr. Swamy. “Bank account holders must get assured 12 per cent interest on deposits of three-year duration.”
http://www.thehindu.com/business/Economy/rajan-has-failed-will-have-to-go-says-swamy/article5994079.ece?homepage=true
>>>I don't know much about Economics.
Are the two statement not contradictory? 
If the intrest rates are brought down, how can the banks raise the interest rates on deposits?

Rishi wrote:We need to immediately drop interest rates … doesn’t mean that we do it in one go … there can be a road map but businesses must know that cost of capital will come down.”
Deposit rates, on the other hand, need to rise, according to Dr. Swamy. “Bank account holders must get assured 12 per cent interest on deposits of three-year duration.”
http://www.thehindu.com/business/Economy/rajan-has-failed-will-have-to-go-says-swamy/article5994079.ece?homepage=true
>>>I don't know much about Economics.
Are the two statement not contradictory? 
If the intrest rates are brought down, how can the banks raise the interest rates on deposits?

Kris wrote:

Rishi wrote:We need to immediately drop interest rates … doesn’t mean that we do it in one go … there can be a road map but businesses must know that cost of capital will come down.”
Deposit rates, on the other hand, need to rise, according to Dr. Swamy. “Bank account holders must get assured 12 per cent interest on deposits of three-year duration.”
http://www.thehindu.com/business/Economy/rajan-has-failed-will-have-to-go-says-swamy/article5994079.ece?homepage=true
>>>I don't know much about Economics.
Are the two statement not contradictory? 
If the intrest rates are brought down, how can the banks raise the interest rates on deposits?

>>>Under this scenario, the banks' cost of borrowing goes up and revenue goes down in the near term. So the net is lower net income. On another note, I wouldn't be so quick as to get rid of Rajan. The reference to his Chicago background seems a little weird. It is not like he is dumb to the point of not knowing the nuances of the economic situation he is dealing with. There are inflation considerations that need to be factored in when you flood the market with cheap money. There needs to be some calibration of this. Rajan is smart and has international recognition. I hope these guys have a dialogue when they get to power instead of swinging with a meat axe prematurely.

rawemotions wrote:

Rishi wrote:We need to immediately drop interest rates … doesn’t mean that we do it in one go … there can be a road map but businesses must know that cost of capital will come down.”
Deposit rates, on the other hand, need to rise, according to Dr. Swamy. “Bank account holders must get assured 12 per cent interest on deposits of three-year duration.”
http://www.thehindu.com/business/Economy/rajan-has-failed-will-have-to-go-says-swamy/article5994079.ece?homepage=true
>>>I don't know much about Economics.
Are the two statement not contradictory? 
If the intrest rates are brought down, how can the banks raise the interest rates on deposits?

Swamy is making a mistake by giving such statements. First they have to even form government. Otherwise all this is moot. Why then make such statements, which will sound like empty gas bags, if they cannot form government ?

Modi's philosophy is work with whoever is the bureaucrat as long as they are hardworking and sincere. This guy goes about talking big throwing his weight around. Even if they have a better person in mind, they  should talk about these things only if they form the government. At the moment the consensus is that they will be lucky if they cross 200 and even reach 220.

Regarding the matter, unless GOI foots the subsidy and keeps the bank credit spreads same, this is not possible. Housing Loan costs will now go to almost 15%.

truthbetold wrote:Rishi
i am no economist. but what you said makes sense.

Rishi wrote:We need to immediately drop interest rates … doesn’t mean that we do it in one go … there can be a road map but businesses must know that cost of capital will come down.”
Deposit rates, on the other hand, need to rise, according to Dr. Swamy. “Bank account holders must get assured 12 per cent interest on deposits of three-year duration.”
http://www.thehindu.com/business/Economy/rajan-has-failed-will-have-to-go-says-swamy/article5994079.ece?homepage=true
>>>I don't know much about Economics.
Are the two statement not contradictory? 
If the intrest rates are brought down, how can the banks raise the interest rates on deposits?

Merlot Daruwala wrote:

Rishi wrote:We need to immediately drop interest rates … doesn’t mean that we do it in one go … there can be a road map but businesses must know that cost of capital will come down.”
Deposit rates, on the other hand, need to rise, according to Dr. Swamy. “Bank account holders must get assured 12 per cent interest on deposits of three-year duration.”
http://www.thehindu.com/business/Economy/rajan-has-failed-will-have-to-go-says-swamy/article5994079.ece?homepage=true
>>>I don't know much about Economics.
Are the two statement not contradictory? 
If the intrest rates are brought down, how can the banks raise the interest rates on deposits?

Swamy is a moron. Banks source funds through deposits, and then lend them out. Unless the cost of funds i.e. deposit interest rate is lower than their lending interest rate, they'll go out of business.

That said, I do believe monetary policy attempts at taming inflation are futile, because the causes are structural i.e. rising rural wages and supply side shortages. The RBI is stifling growth without anything to show for it.

Marathadi-Saamiyaar wrote:Rajan's statement in Swiss has to be seen in the contextof Swamy's blabbering.

Swamy - a speciast in chinese economics and china admirer much like MODI - is dreaming of Finance/commerce/industry. he is showing off his "expertise" to Modi just in time. Rajan is also interpreting it along the same lines and rebutting it angrily (high level people dont make such angry statements openly).

Swamy should be made in charge of Minister of Vigilance - which will keep him busy with Sonia, Vadras, MK, JJ, Jagan, Janardhan cases.  Last week he again won some case in the supreme court.