..........It is essential to get away from the asymmetry of a strong clamour for policy rate reductions but strong resistance to policy rate increases. Under such a system, it would be possible to have well calibrated discrete changes in policy interest rates. As Rakesh Mohan, India’s Executive Director on the IMF Board recently said “ With inflation raging at 7- 10 per cent lending rates cannot be less than 12- 14 per cent.” Reserve requirements Policy interest rate movements will need to be sharper if the monetary transmission process is exclusively dependent on policy interest rates. At least for some time in the foreseeable future, it would be necessary to also use reserve requirements as an instrument of monetary policy.......
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