Would interest be less in case the rate of inflation comes down?

Would interest be less in case the rate of inflation comes down?

Absolutely. As an example, we have already seen what is happening in Japan. The Japanese banks are practically not paying interest on deposits right now. The rate of inflation in the US is around 2% p.a. and accordingly the rate of interest on investment would be around 3% to 3.5% p.a. Thus the rate of inflation in a country and the rate of interest on investment are closely linked to each other. For further details, please look at the “Tier structure” of rates of interest given below.

Consider Indian market conditions. Hypothetically if the inflation comes down to say 1%, the rat e of interest on bank deposits and bank loans in turn would also come down. The banks would not pay the current rate of interest. If the students may recall in India, the rates of interest on savings are constantly coming down. This is the result of the rate of inflation coming down constantly at least till the last year.