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Title: A well-targeted interest rate policy
Speaker: Gurbachan Singh, (Visiting Professor) Ashoka University
Date and Time: 12 May 2023, 11:30 AM
Venue: Seminar Room-2
Abstract: The central bank faces a trade-off while using its interest rate
policy for the purpose of macroeconomic stability. So, the policy is
not very effective. Also, the prevailing interest rate policy includes
a quasi tax-subsidy scheme. In, say, a recession when the central bank
lowers the interest rate, it gives a quasi subsidy to borrowers and it
imposes a quasi tax on savers. So, the policy is redistributive. Also,
the changes in interest rates affect asset prices. So, ceteris
paribus, prevailing policy has adverse side-effects for asset price
stability. This can, in turn, affect banking stability as well (e.g.
the Silicon Valley Bank case in the US). So, the prevailing policy is
also blunt besides being non-transparent. Is it possible to move
towards an alternative interest rate policy that is effective,
transparent and well-targeted? Yes.