ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Monetary Policy

There are three distinct areas where new policy perspectives have to be brought to bear on the economic system. In the supply of bank credit, the mere availability of liquidity in the system is not enough; credit distribution with defined targets for agriculture, small-scale industries and small borrowers is a necessary condition for expanding effective demand. Second, strong persuasive methods have to be adopted on the structure of deposit and loan rates of banks and their spread. Some calibrated intervention in determining these rates, without excessive micro management, is possible on the part of the monetary authority. Finally, an aspect of the interest rate reform agenda, which has harmed the process of healthy credit delivery, concerns the jettisoning of the system of relatively lower rates of interest for long-term loans as compared with rates for working capital. The principle of asset-liability matching should not prevent the banks and financial institutions from promoting investment credit at concessional rates of interest.

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