What will happen if the deposit interest rate is lowered and the loan interest rate is lowered?
Deposit interest rate and loan interest rate are the interest rates of bank capital inflow and outflow, and there is an interactive relationship between them. Generally speaking, when the deposit interest rate drops, it will have the following effects on the loan interest rate:
1, the loan interest rate is lowered.
When banks absorb funds, they need to pay certain deposit interest to depositors. As the deposit interest rate drops, the cost for banks to absorb funds will also decrease. According to market competition and government policies, banks may lower the loan interest rate to attract borrowers and stimulate economic growth.
2. Bank profits may decrease.
If the bank loan interest rate is not lowered in time with the deposit interest rate, or the reduction rate is not large enough, it will lead to the decline of bank profits.
3. The interests of the borrower
When the deposit interest rate drops, banks can reduce the repayment burden of borrowers by lowering the loan interest rate, so that borrowers can get more funds at lower cost.
What are the effects of the decline in deposit interest rates?
1, deposit income decreased.
After the deposit interest rate drops, the deposit income will also drop. This means that the interests of depositors are affected, which may lead depositors to choose other investment methods.
2. The loan interest rate is lowered.
The interest rate of bank loans is mainly determined by market competition and government policies. However, the deposit interest rate has dropped, and the bank's capital cost has become lower. It may consider lowering the loan interest rate to attract more borrowers.
Inflation has increased.
The reduction of deposit interest rate may lead to the increase of money supply and purchasing power, and eventually lead to inflation and reduce the actual purchasing power of money.
4. Economic stimulus
During the economic downturn, the government may take measures to reduce the deposit interest rate to promote economic growth and activate investment and consumer demand.