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No economy has sustained GDP growth with a real policy rate above 1.75%

11-Aug-2019Surjit Bhalla

Is India as different as claimed by “experts”? My own experience, and interpretation, is that India is very different because the experts (perhaps including those at the Central Bank) look at monetary policy very differently.

This time, MP does not mean Member of Parliament, but Monetary Policy. What I want to discuss today is the FOG surrounding monetary policy in India. It used to be the case, around the world, that a deliberate fog was created around central bank speak. That changed post the 2008 financial crisis. Central banks around the world went for three Cs—Clarity and Consistency in Communication. All advanced country central banks go for the 3Cs; among EMEs, I don’t know, but what I hear foreign investors say is that the developing world is much closer to the advanced economies than to India.

Is India as different as claimed by “experts”? My own experience, and interpretation, is that India is very different because the experts (perhaps including those at the Central Bank) look at monetary policy very differently. Most importantly, Indian experts look at the monetary policy through nominal lenses; economics is about the real world. After all, nobody talks about nominal GDP growth; when we discuss growth, it is growth adjusted for inflation. Why don’t we do the same with the MP variable called the repo rate—or talk of real borrowing and lending rates?

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