Interest rate dynamics

The racing line: the fastest way around a racetrack. Brake just right, turn in just right, hit the apex just right, and line up for the next corner just right.

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One misjudgment, and your track time is suboptimal.

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So too with interest rates offered by banks on deposits. Profit is optimal and deposits are maximized by offering just the right interest rate for just the right product to just the right customer all of the time.

 

Slightly misjudge the line, and customers will either stray or money will be wasted.

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Find the line, and you are winner. But not for long. Changes to market conditions and customer behavior conspire like variable track conditions and other cars to knock you off line.

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The situation becomes even more challenging when today’s interest rate dynamics have little by way of precedent.

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Read on