Asked whether the Reserve Bank of Indias (RBI) decision to leave the Bank Rate unchanged would impact the economy, he told FE that the Bank Rate influences the cost and availability of credit, which is one of the many factors influencing growth.
Growth of an economy depends on a variety of factors. In the case of India too, we are expecting a much higher rate of GDP (gross domestic product) growth only now, although the interest rates have remained soft for sometime past, he added.
He was elaborating on his comments after RBIs mid-term review of the monetary policy presented on Monday.
He pointed out that while the interest rate was an important instrument of monetary policy for macro-economic management of economy, there was no unique and causal relationship between interest rates and growth rate of an economy.
In Japan, for instance, long-term interest rates from 1998 to 2003 have ranged between 1.8 per cent and 0.5 per cent. Yet economic growth has been negative in some years and insignificant in some others.
In the case of the United States, between 1998 and 2003, interest rates have ranged between 6 per cent and 4.4 per cent, whereas the growth rate has varied between less than 1 per cent to around 6 per cent in different quarters, he observed.