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A rate floor doesn’t mean exact market rate. It connotes the lowest rate that should be offered and in a competitive market, sellers (in this case banks) will compete to offer higher rates to attract customers. https://twitter.com/afroconomist/status/1300685693593751553">https://twitter.com/afroconom...
This floor rate automatically becomes either the lowest guaranteed limit by the bank or the lowest acceptable limit by the customer.
That becomes the first point of bargain/negotiation with your bank for interest rates on your deposits.
That’s me saying the same thing 2x
That becomes the first point of bargain/negotiation with your bank for interest rates on your deposits.
That’s me saying the same thing 2x
However, it is important that the rate floor is placed at least within the equilibrium of what the market currently offers.
Because if placed lower the equilibrium rates, banks may cut higher rates to comply and if above, customers will get more.
Because if placed lower the equilibrium rates, banks may cut higher rates to comply and if above, customers will get more.
Either ways, the market always converge at the equilibrium as banks will always want to reduce cost and many will not pay above that rate! So if you’re earning a higher rate from a bank, it’s most likely possible they’d cut their rates
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Also, in order to examine whether it’s justifiable then you have to examine the corresponding rev/returns coming from the utilization of your deposits.
The average lending rate plus the cost of processing these loans less the cost of fund = margins on loans.
The average lending rate plus the cost of processing these loans less the cost of fund = margins on loans.
The “floor” cost of funds for banks becomes 10% of MPR (curr ~1.24%).
The higher the MPR, the higher the cost of lending.
Next will be, will there be a “lending rate ceiling” to ensure banks don’t charge people too high?
The higher the MPR, the higher the cost of lending.
Next will be, will there be a “lending rate ceiling” to ensure banks don’t charge people too high?
Next stop is to check the opportunity cost of getting the deposits for banks & the opportunity cost of putting money in banks by customers.
Is there a juicy alternative people can put their money if the rates from banks are low? Maybe not as much!
Is there a juicy alternative people can put their money if the rates from banks are low? Maybe not as much!
Will there be a possible increase in the T-bills rate in the coming months? maybe, maybe not!
If the opportunity cost is higher than expected returns for keeping money in banks, people may move money to other alternatives.
Then, next is to compare the risk of the alternative
If the opportunity cost is higher than expected returns for keeping money in banks, people may move money to other alternatives.
Then, next is to compare the risk of the alternative
We can go on and on... linking this single change to a number of variables—-
This thread is very sketchyhttps://abs.twimg.com/emoji/v2/... draggable="false" alt="😭" title="Laut schreiendes Gesicht" aria-label="Emoji: Laut schreiendes Gesicht">
This thread is very sketchy
