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Wednesday, Nov 17, 2004

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Public policy

The Indian markets have firmed up interest rates recently against the desires of the authorities. Public policy in India has always been one of Trisangu Swarg (neither here nor there) in an attempt to satisfy all sections of society. If the Government wants the markets to decide such variables as interest rate there is no point in its advising financial institutions on the matter.

Despite the Government's attempt to maintain the façade of a low-interest-rate regime, the deposit, credit and bond markets have given their verdict. Banks are raising the rates.

The yield on the bellwether 10-year bond of the Government has moved up by 200 basis points in the recent months. It reached a high of 7.33 per cent at one time, not seen in two years. As a Governor of the Bank of England once said the central bank leads the markets sometimes and is led by the latter on other occasions in a free and deregulated environment.

A. Seshan

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