ZENITH International Journal of Multidisciplinary Research
Year : 2015, Volume : 5, Issue : 12
First page : ( 59) Last page : ( 67)
Online ISSN : 2231-5780.

Investigating the relationship between call money rates and term deposit interest rates structure in India

Dr. Pakira Sanjib Kumar

Asst. Professor, Dept. of Commerce, Maharaja Manindra Chandra College, West Bengal, India

Online published on 22 January, 2016.

Abstract

Interest-rate is a vital tool of monetary policy and is taken into account when dealing with variables like investment, inflation, and unemployment. A major constituent of public savings is through Term deposits constituting nearly 85% of the Total deposits. In contrast, Call money is a method by which banks lend to each other to be able to maintain the cash reserve ratio. The interest rate paid on call money is known as the call rate. It is a highly volatile rate that varies from day to day and sometimes even from hour to hour. There is an inverse relationship between call rates and term deposit rates. The present paper explores the causal relationship and long term association between call money interest rates and various Term deposit interest rates structure in India for the period from 2001–02 to 2015–16(up to July 14, 2015) using yearly data with the application of unit root test, Johansen cointegration test and Granger causality test. Johansen cointegration test result indicates that there exists a long-term relationship among the selected variables. Granger causality test result shows that there must be either bidirectional or no causality among the variables.

Top

Keywords

Term Deposits, Call Money, unit root test, Granger causality test, Johansen cointegration test.

Top