Q: PS: This is inspired by Ayiza's earlier question on 100 base points.... If I have had 50 to spare and now should take half of that to pay a hiked interest on my bond, how does that encourage the culture of saving?
A: I will try to give a simple explanation. People are using borrowed money to buy luxury items. When interest rates are low they don't care what they pay for certain products. Demand rise, Prices go up, Inflation goes up. To answer your second question, If you have to spend 50%+ of your disposable income on debt, you simply have to much debt. You can also save by paying less interest, for instance KILL CREDIT CARD DEBT first, then clothing and other accounts finally your overdraft. If you have to borrow against your home to cover the above mentioned, its not a bad thing. You will eventually be able to put extra money into your bond and other savings mediums.