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Originally Posted by kalpeshc  Also, I do understand that higher the tenure the rates would increase |
That would be the case ONLY in a growing economy (A.k.a Normal Yield Curve). Such economy means more money / more demand and thus higher costs.
Inflation will ensure that Central banks need to suck money out of system. And that is done by raising interest rates.
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Originally Posted by kalpeshc No, it's not inflation driven. The banks try to protect their margins on rates (lending and deposits). They always have to increase both together and its driven by RBI's rates. |
This assumes that deposits are source of funds for banks (as in old banking system).
This is not always the case. For example, A bank can borrow from Japan at 2.5% and lend in India for 12%.