Interest Rates Refuse to Behave

EPWResearch Foundation Interest Rates Refuse to Behave Financial System in a Maze THE financial system is now caught in a Iabyrinthian maze. Though the Reserve Bank of India (RBI) has flogged the system with large releases of liquidity, the system itself has failed to respond and help the authorities in achieving a genuine downward shift in those elements of the interest rate structure which matter to the productive sectors. The rub lies in the authorities persistent dependence on indirect instruments of monetary control rather than reimposing direct interest rate regulations which the situation demands. The-free market policies have let loose unbridled competition among banks, financial institutions (FIs) and non-banking financial companies (NBFCs) to mobilise scarce financial assets of the community, which has spawned the most glaring mismatch between the yields offered on such assets and the rates of interest that are economical to the productive borrowers.