September 10, 2019

Opinion | How low can interest rates go in addressing the downturn?

In this Mint article, Niranjan Rajadhyaksha writes on how the monetary policy can be used to reduce interest rates to tackle the ongoing economic slowdown. 


Excerpts below: 


"Most economists believe there is scope for the Reserve Bank of India (RBI) to cut interest rates to boost domestic demand. The space for fiscal action is relatively small, since total government borrowing is already soaking up most of the financial savings of households. How low can interest rates go?"


On the application of Taylor Rule:


"The Taylor Rule is not a magic wand that can reveal the desired repo rate at any point in time. Monetary policy is a far more complicated business. But the Taylor Rule does suggest that there is still ample space to cut policy interest rates from their current level of 5.4%—or even more, depending on the neutral rate used in the calculation."


Read the complete article here.

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