Since the demonetization action taken by the government, there has been speculation regarding the lowering of interest rates as a cascading effect of this action taken by the government. May be we are seeing early signs of this trend taking place as earlier this week the State Bank of India (SBI) announced a lowering of interest rates. The State Bank of India earlier this week announced a reduction of interest rates on bulk deposits by 15 basis points across one to three year tenors with immediate effect.
Read More on Demonetisation: SBI slashes bulk deposit rates by up to 1.9%
At the same time Axis Bank reduced its marginal cost of lending rate (MCLR), which is the weighted average cost of borrowing according to the bank’s data. This move is a result of the increased amount of money coming into the bank by way of deposits after the government announced the scrapping of Rs.500 and Rs. 1000 notes.
As a result of the demonetization scheme banks all across the country have seen a surge in daily deposits and as a result banks are expected to reduce interest rates in the near future.
The State Bank of India has announced interest rates for term deposits of a tenor of one year to 455 days, 456 days to two years and two to three years are now reduced to 6.90%, 6.95% and 6.85% respectively.
Other banks such as SBI, HDFC bank and ICICI Bank have reduced MCLR by 15 basis points in the past one-month, with Axis Bank reducing its MCLR by 15 basis points up to one year to 9.05%. MCLR for both two and three year tenors have accordingly been reduced by 20 basis points to 9.10% and 9.15% respectively. The reduced MCLR will take effect from Friday.
Read More on Bad news for FD investors: SBI, Kotak HDFC slash deposit rates
This development may be a direct result of the demonetization scheme of the government, which has resulted in an overnight surge in deposits with the banks. Is this trend to continue, we will have to wait and watch.
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