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Sunday, December 28, 2008

Tough time ahead for senior citizens as deposit rates fall

Senior citizens and those depending upon interest income will have a tough time in 2009 as deposit rates which have already declined by 100 basis points in the past one month are expected to fall further as RBI is likely to further easy money supply.

Most of the banks including the largest public sector lender State Bank of India (SBI) has decided to cut down the peak deposit rates by another 100 basis points from January 1.

SBI, which earlier paid interest at the rate of 10.5 per cent (11 per cent to senior citizens) in October, will slash its peak rates on fixed deposits to 8.5 per cent.

The other large state-owned lenders like Bank of Baroda and Bank of India too have announced plans to cut deposit rates in the new year.

Deposit rates are expected to come down by another 200 basis points in the next six months as inflation has softened considerably, said a senior official of Oriental Bank of Commerce.

Making a case for "aggressive" reduction in interest rates, the Government in its Mid-Year Review of the Economy, tabled in Parliament said "there is considerable scope for monetary policy easing over the next six to 12 months to offset the global increase in demand for money that is being transmitted to India".

According to the Crisil Principal Economist D K Joshi, the declining inflation rate provides more leeway to the RBI to further slash interest rates. I expect a 100 basis point cut in both the repo (short-term lending rate) and reverse repo (short-term borrowing) rates."

Courtesy: PTI

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