RBI warns against combination of high public debt, low interest rates


Mumbai, Jul 2 (IANS): 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.

d

  

Top Stories


Leave a Comment

Title: RBI warns against combination of high public debt, low interest rates



You have 2000 characters left.

Disclaimer:

Please write your correct name and email address. Kindly do not post any personal, abusive, defamatory, infringing, obscene, indecent, discriminatory or unlawful or similar comments. Daijiworld.com will not be responsible for any defamatory message posted under this article.

Please note that sending false messages to insult, defame, intimidate, mislead or deceive people or to intentionally cause public disorder is punishable under law. It is obligatory on Daijiworld to provide the IP address and other details of senders of such comments, to the authority concerned upon request.

Hence, sending offensive comments using daijiworld will be purely at your own risk, and in no way will Daijiworld.com be held responsible.