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RBI cautions against high public debt, low interest rates
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SME Times News Bureau | 02 Jul, 2021
As economies around the world witness ultra-low interest rates and
rising public debt amid the pandemic, the Reserve Bank of India (RBI)
has said that the combination would pose challenges.
The pandemic
response saw a tight interaction of monetary and fiscal policy. As
monetary policy has sought to control a larger segment of the yield
curve, the overlap with public debt management has grown, noted RBI's
Financial Stability Report for July.
It noted that with monetary
policy committed to an easy stance for some time in many countries, the
fiscal stance becomes important.
Too loose a fiscal stance could
cause inflation surprises and financial conditions could tighten, it
said, adding that a more constrained fiscal policy would add pressure on
monetary policy.
"It would test the efficacy of further monetary expansion and could heighten intertemporal tradeoffs," it said.
The
extraordinary combination of high debt-to-GDP ratios and ultra-low
interest rates raises three challenges, said the central bank's report,
with the first being the risk of fiscal dominance.
Further, it
may also lead to a situation where fiscal positions may ultimately prove
unsustainable and the complications of the possible joint
"normalisation" of fiscal and monetary policies would also crop.
Growth-friendly fiscal policy, the RBI suggested, can help by effectively targeting public infrastructure and productivity.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
|
64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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