Interest rates have been an interesting topic of discussion lately.
Too low: Inflation and asset bubble
Too high: Portfolio dies
But let me tell you guys the story of my country where the govt said “Deposit rate 6% and lending rate 9%. Kthnxbye” and screwed over all the resemblance of a market based rate in Dec 2019. (Historical inflation 5-6.5% for context)
Cap went into effect in March 2020. COVID and fiscal measures made it so that the effect of these fixed rates weren’t seen for 2020 and upto mid 2021.
Then the whole world woke up. Our current account balance went to shit. Currency lost upto ~30% of value (it’s at ~22% now) and inflation has been ~10% and that’s due to the govt keeping it artificially low.
When the rate caps went into effect everything from bank stocks to financial sector wages and job openings went to shit.
I sometimes look at the developed countries and can’t help but feel a bit envious. At least your financial system makes some sense.
Note: Recently IMF got the govt to begrudgingly promise to lift the cap. Anything for the loan right?
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