5.03.2008

Inflation and Bank interest Rates

Now a days, you might have heard lot of these terms and usage on inflation and the bank interest rates.
Bank interest rate depends on many other factors, out of that the major one is inflation.
Whenever you see an increase on inflation, there will be an increase of interest rate also.
Inflation is high means people have more money so is the demand,so to reduce the demand we have to get the money back from the system.For that the RBI increases the CCR rates and repo rates.which in turn makes the bank to raise their lending rates.which sucks the money out of the system and brings down the demand.