What we have to be careful is that if we drop interest rates where the rate of interest is lower than inflation, then savers will not put money in financial savings and move it to gold and real estate, which is bad for India.
Sentiment: NEGATIVE
If you ask me, over time, I am a believer in the Indian financial saving story getting stronger; a lot more savers are moving money away from gold and real estate into banks, mutual funds, insurance and equities.
Low interest rates are a big opportunity for investment. But the issue is that this money should go to the real economy, not the financial economy.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.
With interest rates rising, gold doesn't pay an interest rate, but every other currency - it becomes not only less important to hold gold as an alternative, but more expensive to hold it as an insurance policy and so that will be a burden on the price of gold.
It would be helpful if someone would lay out exactly the economic mechanism that gets us from yet lower interest rates to actual economic activity.
Should that worse scenario materialize, then most probably our propensity to increase interest rates will be weaker.
The real problem is deflation. That is the opposite of inflation but equally serious to the borrower.
Anything that we can do to raise personal savings is very much in the interest of this country.
The impact of low interest rates is broad and deep. Many Americans rely on interest income from their savings to help cover their cost of living.
If we did go into a recession, something that's always possible for the U.S. or Europe, we could lower interest rates and expand the money supply without worrying about the price of gold.