RBI’s monetary policy seems to be influenced by two considerations. The interest rate has to be above the rate of inflation and there should a minimum margin between the repo rate and the rate of inflation. That is not how other central banks are managing their money.
D H Pai Panandiker, president, RPG Foundation, says: “In a sample of 10 countries, only half had their central bank lending rates above the rate of inflation. These were China, India, Japan, Russia and South Korea – with the average central bank rate at 4.9% and average inflation at 3.1%. That accounts for a margin of 1.8% between interest rate and inflation. Five others – the euro zone, Indonesia, Turkey, the UK and the U.S. – ignored inflation altogether. In this case, average inflation was at 3.8% while the average central bank lending rate was 2.1%.” Read More