Whether the bank's deposit and credit rate fixation good or bad for a country is a controversial issue. Many countries use several techniques for proper using of bank's deposit and credit rate. Some experts think that bank's deposit and credit rate should be based on country's demand and supply of money. On the other hand, some experts think that it will be good to fix the bank's deposit or credit rate. Both techniques have some pros and cons.
First of all, most of the experts think that the credit and deposit rate should be based on demand and supply of money. Sometimes, the demand for credit is higher. At that time, banks engaged to collect more deposit from the clients by declaring higher deposit rate. At the same time, bank will turn the credit rate higher due to maintain bank's higher cost. In this regard, borrowers become demotivated to take credit from the bank. By this way a right balance is being ensured. Another thing is that, if the demand for credit is higher then bank will face liquidity crisis. From this perspective, it will be said that bank's deposit and credit rate should be directed by demand and supply of money.
On the other hand, some scholars think that bank's deposit and credit rate should be fixed by the supreme authority of the country like the government or the central bank. If the rate is fixed, people will get loan from the bank at lower rate. It will lead to florish private sector investment and assist to open the door of more employment opportunity. At the opposite side of the coin, due to lower credit rate, bank will bound to keep its deposit rate lower. Thereore, clients will be demotivaed to deposit their money to the banks. In this regard, banks will face a great crisis.
Morover, it is a million dollar question that which method will be fruitful for a country's economy. From my point of view, bank's deposit and credit rate should be based on country's supply annd demand of money.
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