INTEREST RATES-Bewildering Maze

December 22-29, 1984 INTEREST RATES Bewildering Maze (By a Special Correspondent) INTEREST rates, which are basically relative prices quoted in financial markets, have a significant influence on economic decisions. Distortions in the level and structure of interest rates encourage unhealthy trends in financial intermediation. Normally, rates of interest on different instruments which are subject to income and capital uncertainty should reflect the opportunities for substitution of investment for current consumption and disinclination of con- sumers to wait. This would be true of conditions in which the rates are determined by market forces of supply and demand. On the other hand, the outcome when interest rates on savings instruments and on loans are administratively fixed, as is the case in India, would evidently be very different.