Tackling inflation through high interest rates can be only a temporary measure. Keeping interest rates high over a longer period can have following implications:
A. Increases the cost of goods, specially products of capital-intensive industries like steel, cement, power etc.
B. Discourage entrepreneurship due to high cost of capital
C. Increases the cost of living for buying capital assets like House, Cars, Consumer Durables
D. Increases the cost of services like transport, electricity as they are capital intensive.
It is high time, we take stock of the situation and resist of just keeping the interest rates over a long period. It can be counterproductive or is it already so in India, where we find high inflation rate instead of high interest rates.
A. Increases the cost of goods, specially products of capital-intensive industries like steel, cement, power etc.
B. Discourage entrepreneurship due to high cost of capital
C. Increases the cost of living for buying capital assets like House, Cars, Consumer Durables
D. Increases the cost of services like transport, electricity as they are capital intensive.
It is high time, we take stock of the situation and resist of just keeping the interest rates over a long period. It can be counterproductive or is it already so in India, where we find high inflation rate instead of high interest rates.
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