Banks observe a decrease in deposits. The bankers claim that despite providing higher and more competitive rates, they have recently noticed a significant slowdown in deposit growth, which they attribute to a significant squeeze on household and corporate balance sheets after the hyperinflation became persistent and began to eat away at real incomes and margins.
One banker claimed that the higher rates they give for deposits have had only lukewarm response after some big increases were seen in April and May in response to the Central Bank’s hefty policy rate hike, as consumers and businesses are running out of cash amid soaring prices in the economy.
Where these funds are being invested, and where a hedge against inflation can be offered, is not immediately evident.
At a time when official prices are rising by more than 45 percent, banks have been providing rates for one-year fixed deposits that are higher than 15 percent.
In the three months that ended in March, the banks’ rupee deposits showed some moderate growth, but the total amount of deposits enhanced due to the conversion impact after the rupee lost 50% of its value in three weeks since being free float on March 7.
There is presently no concern, but if the current hyperinflationary trend continues, the banks may experience some liquidity problems.