The politics and economics of interest rate formation in this country must be studied carefully. Lowering the interest rate raises stock prices in an environment where they themselves cannot move up thanks to the fundamentals of the economy that are not conducive.
Economic laws and principles are not bound to be people-friendly, but on many occasions the right kind of economics tends to help masses. A decline in the interest rate on fixed deposits in banks, justified in the face of a declining inflation rate and perennially desired by the government as necessary to promote investment, is clearly anti-people, even if supported by apparently good economic logic. Since the country’s central bank is not in the business of assessing people’s welfare and is guided by sound economic logic, the government should have taken initiative to provide a broader picture of reality and the associated good economics.
Unfortunately for the people, whose living conditions are entirely dependent on small amounts of saving and are frightened to invest in the stock market or any other avenues of investment because of their incapacity to undertake risk, the cutback in interest rates spells disaster. But given the close connections between the media and the lobbies that are continuously after a reduction in interest rates, the affected voices are not allowed to be heard, and the government fails to provide them the dignity they deserve. In this brief note, I am going to talk about only economics that is being ignored or not highlighted because of different kinds of vested interests.
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