An Econometric and Descriptive Analysis of Deposit, Call Money, and Lending Rates in India

Abstract

Purpose: The study aimed to explore the causal relationships among the call money rate, the term deposit rate above five years, and the lending rate during the period from 1980 to 2020. Methodology: The empirical analysis employed the Augmented Dickey-Fuller (ADF) test to check stationarity, the Johansen cointegration test to identify long-term relationships, and the Granger causality test to investigate causal connections among the variables. Findings: The ADF test results indicated that all variables were integrated at order one. The Johansen cointegration test revealed the existence of long-term relationships among the variables. The Granger causality test demonstrated no causal link between the term deposit rate above five years and the call money rate. However, it identified bidirectional causality between the lending rate and the call money rate, as well as between the lending rate and the term deposit rate above five years. Originality: This study provided an in-depth analysis of the interrelations among key interest rates in India over four decades, providing insights into their dynamics and implications for monetary policy.