Need to bring repo rate in line with inflation
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