Interest Rate Determination in India: Analyzing RBI’s Post-Covid Monetary Policy Stance Using High Frequency Data

Prasanth C, Lekha Chakraborty and Nehla K Shihab

MPRA Paper from University Library of Munich, Germany

Abstract: Against the backdrop of the new Monetary Policy Committee (MPC) decisions to maintain the status quo policy rates, we analyse the post-pandemic monetary policy stance in India. Using high-frequency data, the term structure of interest rate is analyzed incorporating monetary aggregates, fiscal deficit, inflation expectations and capital flows. The results revealed that the fiscal deficit does not significantly determine interest rates in the post-pandemic monetary policy stance in India. The long-term interest rates were strongly influenced by the short-term interest rates, which reinforces that term structure is operating in India. The results further revealed that long-term interest rates were also positively influenced by capital flows, and inflation expectations, while it was inversely impacted by the money supply. These inferences have policy implications on the fiscal and monetary policy coordination in India, where it is crucial to analyse the efficacy of high interest rate regime on public debt management. Our results also refute the popular belief that deficits determine interest rates in the context of emerging economies.

Keywords: Interest Rate Determination; Post Pandemic Monetary Policy; Fiscal Deficit; Monetary Policy Commitee (search for similar items in EconPapers)
JEL-codes: C32 E43 E63 (search for similar items in EconPapers)
Date: 2024-10-10
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/122345/1/MPRA_paper_122345.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:122345

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().