Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: VAT Audit :: ARTICLES ON INPUT TAX CREDIT IN VAT :: list of goods taxed at 4% :: cpt :: due date for vat payment :: ACCOUNTING STANDARD :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TDS :: ACCOUNTING STANDARDS :: TAX RATES - GOODS TAXABLE @ 4% :: Central Excise rule to resale the machines to a new company :: articles on VAT and GST in India :: form 3cd :: empanelment :: VAT RATES
 
 
« Latest Circulars »
 Payment Systems - Next Orbit (Shri R. Gandhi, Deputy Governor - February 20, 2017 - at the launch of Bharat QR Code at Hotel Trident, Mumbai)
 Financing MSMEs: Banks & FinTechs – Competition, Collaboration or Competitive Collaboration? (Shri S. S. Mundra, Deputy Governor – February 20, 2017 – at the NAMCABS Seminar organized by College of Agricultural Banking in Mumbai)
 Issuance of Rupee denominated bonds overseas – Multilateral and Regional Financial Institutions as Investors
 RBI-Formation of twenty one new districts in the State of Telangana - Assignment of Lead Bank Responsibility
 RBI imposes penalty on Janata Urban Co-operative Bank Ltd., Wai, District Satara
 Monitoring of Foreign Investment under PIS in Indian Companies- Incorporation in Ban List–M/s HDFC Bank Ltd.
 Reserve Bank of India seeks Comments on Draft Circular on Rationalisation of Merchant Discount Rate (MDR) for Debit Card Transactions
 Forward Rate Agreement (FRA) and Interest Rate Swap (IRS) - Withdrawal of Fortnightly return
 RBI-Foreign Investments in India
  RBI cancels the Licence of the Shri Chhatrapati Urban Co-operative Bank Ltd., Pimple Nilakh, Pune, Maharashtra
  Finance Minister meets the Directors of the RBI Central Board

RBI Working Paper Series No. 5: Natural Interest Rate: Assessing the Stance of Indias Monetary Policy under Uncertainty
October, 15th 2015

The Reserve Bank of India today placed on its website a Working Paper titled Natural Interest Rate: Assessing the Stance of India’s Monetary Policy under Uncertainty under the Reserve Bank of India Working Paper Series*. The Paper is co-authored by Harendra Kumar Behera, Sitikantha Pattanaik and Rajesh Kavediya.

The conduct of monetary policy has to often contend with uncertainties surrounding the evolution of the natural interest rate over time. The appropriateness of a monetary policy stance relative to its stated ultimate goals is commonly assessed by comparing the nominal policy interest rate against a Taylor type rule guided interest rate path. This, however, implicitly assumes the underlying natural interest rate as constant. The paper uses a theoretical framework that combines the essence of Ramsay’s growth model and the New-Keynesian macro-dynamics, and application of the Kalman filter estimation technique. The paper finds that India’s natural real interest rate in Q4 of 2014-15 was in a range of 0.6 per cent to 3.1 per cent, even though core estimates point to a narrower range of 1.6 per cent to 1.8 per cent.

The evolution of the natural rate is primarily conditioned by structural determinants such as productivity, population growth and saving rate (or households’ time preference). Over time, however, empirical literature points to the role of other determinants, including fiscal/ financial/ structural/ institutional reforms. The natural rate can change when the underlying determinants change. Among all possible determinants, some may be more permanent and others transitory, and importantly, some factors that just work towards pushing the actual real rates away from the natural rate may be wrongly viewed as determinants. Realistic assessment of the natural rate amid heightened uncertainty, therefore, would continue to be a major challenge for monetary policy.

Other major findings of the paper are:

a) the estimated natural interest rate in India is time-varying, as in other advanced and emerging economies;

b) the estimated natural interest rate has declined after the global crisis;

c) the estimates are highly sensitive to the choice of methodology, the measure of inflation expectations (both ex-ante and ex-post) used for deflating the nominal interest rate, and the nature of other data used in the model;

d) the real interest rate gap (i.e., the real policy rate minus the estimated time varying natural rate) remained negative for a major part of the last decade, indicating that monetary policy stance of the Reserve Bank was largely accommodative rather than anti-inflationary; and

e) the real interest rate gap has almost closed and turned marginally positive since the second half of 2014-15. When projected inflation remains above the inflation target, the real interest rate gap must remain positive, notwithstanding uncertainty associated with the precise estimation of the level of natural interest rate at any point in time.

* The Reserve Bank of India introduced the RBI Working Papers series in March 2011. These papers present research in progress of the staff members of the Reserve Bank and are disseminated to elicit comments and further debate. The views expressed in these papers are those of authors and not of the Reserve Bank of India. Comments and observations may kindly be forwarded to authors. Citation and use of such papers should take into account its provisional character.

Sangeeta Das
Director

Press Release : 2015-2016/902

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - We Bring IT. Offshore software outsourcing company. We use Global Delivery Model (GDM) and believe in Follow The Sun principle

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions