Why Interest Rates May Not Reduce Any Further?

Business

oi-Sunil Fernandes

By Sunil Fernandes

Updated: Monday, November 13, 2017, 11:46 [IST]

Interest rates in the economy would not reduce any further, as inflation comes back to the fore. Globally, interest rates are headed higher with the US Fed all set to hike interest rates for the third time in December.

The Bank of England also recently raised interest rates, following worries over inflation. Most countries around the globe are tightening, with the US Fed also trimming its balance sheet. It is unlikely that we will see an interest rate cut anytime soon by the Reserve Bank of India.

As such loan borrowers are not likely to get too much of a relief as the interest cutting cycle may now be over. Deposit holders on the other hand should not invest in long term tenure of deposits, as interest rates are likely to rise, at least not now then in the next one year or so.

Once you have parked your money in a long term duration deposit, if you break your deposit, there would be a levy of one per cent as charges if you break your deposit.

Hence, it would be advisable to place money in short term tenure deposits. At the moment it would be advisable to stay from long term deposits, as a spike in inflation could lead to rate cuts being on hole, or the RBI even preparing to hike interest rates. A good idea would be to place money for shorter duration like less than one year.

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