Saturday, October 25, 2014
WHEN TO LOWER INTEREST RATES - IF NOT NOW, WHEN? - CALL TO RBI !
WHEN TO LOWER INTEREST RATES
IF NOT NOW, WHEN?
Mr.Arun Jaitley has also felt now that RBI’s Interest Rates need to come down. He is very right on this issue. Interest Rates must come down now. They have remained too high, too long. This Blog has said so several times in the past.
In fact, High Interest Rates have never worked in India to control Inflation, as seen from last 4 years of RBI experience itself. Even as Interest Rates were being enhanced by RBI, Inflation was also going up, making the Rate increases meaningless.
Now, Inflation is coming down only because of supply side measures by Government and also market conditions, but not due to RBI Rate Policy. Interest Rate increases and decreases never impacted Inflation in last 4 years. But, they did impact Growth.
Today, Banks have liquidity but there are NO TAKERS. This evidently means, Interest Rates are TOO HIGH in India, for manufacturers to take loans for Growth/Expansion Purposes.
It is ridiculous in a developing economy, that Banks must be concentrating only on retail demand and working capital needs as they are ALL doing at present.
But, Companies are borrowing from foreign institutions and Foreign Banks, but not from Indian Banks for development / expansion purposes. They are even preferring to build companies outside India. This trend is not good at all for India. While Government is asking everyone to come and MAKE IN INDIA, the interest rates in India are so sky high that it by itself becomes a big deterrent for MAKE IN INDIA.
RBI’s Rate Policy is one cause, though not the only cause, for this trend. The other major cause, was the sickening delays and corruption in India at least under UPA II.
RBI's other policies are very good, effective and Praise-worthy. But, its interest rate policy has become meaningless. RBI must introspect and bring down Rates with no further delay, without waiting for Inflation to come down further and further. My simple reason for this is – there is no visible correlation between interest rates and Inflation in India, but correlation exists between Interest rates and Growth and is HIGHLY VISIBLE.
And, therefore, RBI must leave Inflation control to Government and give its total help in promoting growth with the catalyst of lower interest rates.
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