Reading Comprehension – Test 94

Read the following passage carefully and choose the most appropriate answer to the questions out of five alternatives. <br><br> A regime of high interest rates can be bad not only for investment - and thus for growth and employment - but also for financial stability. Sharp increases in interest rates can trigger distress. A trade-off between low inflation and financial stability could emerge depending upon how the former was purchased. If low inflation is achieved via high interest rates it can trigger financial instability in two ways. The first is via the direct impact on the cost of financing in a floating interest-rate regime; a higher policy rate translating into a higher borrowing rate. Second, if rising interest lowers growth, revenue will grow more slowly for firms. Both these mechanisms can render once-sound projects unprofitable, leaving banks stressed. It appears that this did not find a place in the operating manual that goes with the 'modern monetary policy framework', with inflation targeting as its primary focus, instituted in India in 2015. That our concerns are not purely imaginary is evident in the fact that there has been a growth of non-performing assets of banks even after a change in the method of classification first resulted in their surging in 2015. This feature along with the spectacular collapse of the giant Infrastructure Leasing and Financial Services Ltd (IL&FS) recently point to the need to review the role of the RBI. <br><br> Experience suggests that it must be tasked with far greater responsibility for maintaining financial stability while being granted wider powers. It goes without saying that the Finance Ministry and its nominees on the RBI Board should desist from insisting upon actions that could jeopardise financial stability in trying to quicken the economy. At the same time, the RBI's leadership may want to reflect on the mindset that leads to publicly lecturing the government of India on the fate of incurring the "wrath of financial markets". Whatever be the compulsions of securing the balance of payments, such a view privileges the interests of international finance capital over the public interest in a democracy. It also suggests that the movements in the financial markets are to be treated as the bellwether in economic policy-making. Actually, over the past 30 years, from Mexico to southeast Asia, financial markets can be seen to have been fickle, self-serving and capable of causing great harm as they switch base globally in search of profits through speculation.

High interest rates can adversely affect "¦.

Read the following passage carefully and choose the most appropriate answer to the questions out of five alternatives. <br><br> A regime of high interest rates can be bad not only for investment - and thus for growth and employment - but also for financial stability. Sharp increases in interest rates can trigger distress. A trade-off between low inflation and financial stability could emerge depending upon how the former was purchased. If low inflation is achieved via high interest rates it can trigger financial instability in two ways. The first is via the direct impact on the cost of financing in a floating interest-rate regime; a higher policy rate translating into a higher borrowing rate. Second, if rising interest lowers growth, revenue will grow more slowly for firms. Both these mechanisms can render once-sound projects unprofitable, leaving banks stressed. It appears that this did not find a place in the operating manual that goes with the 'modern monetary policy framework', with inflation targeting as its primary focus, instituted in India in 2015. That our concerns are not purely imaginary is evident in the fact that there has been a growth of non-performing assets of banks even after a change in the method of classification first resulted in their surging in 2015. This feature along with the spectacular collapse of the giant Infrastructure Leasing and Financial Services Ltd (IL&FS) recently point to the need to review the role of the RBI. <br><br> Experience suggests that it must be tasked with far greater responsibility for maintaining financial stability while being granted wider powers. It goes without saying that the Finance Ministry and its nominees on the RBI Board should desist from insisting upon actions that could jeopardise financial stability in trying to quicken the economy. At the same time, the RBI's leadership may want to reflect on the mindset that leads to publicly lecturing the government of India on the fate of incurring the "wrath of financial markets". Whatever be the compulsions of securing the balance of payments, such a view privileges the interests of international finance capital over the public interest in a democracy. It also suggests that the movements in the financial markets are to be treated as the bellwether in economic policy-making. Actually, over the past 30 years, from Mexico to southeast Asia, financial markets can be seen to have been fickle, self-serving and capable of causing great harm as they switch base globally in search of profits through speculation.

What is not one of the consequences of imposing higher interest rates -

Read the following passage carefully and choose the most appropriate answer to the questions out of five alternatives. <br><br> A regime of high interest rates can be bad not only for investment - and thus for growth and employment - but also for financial stability. Sharp increases in interest rates can trigger distress. A trade-off between low inflation and financial stability could emerge depending upon how the former was purchased. If low inflation is achieved via high interest rates it can trigger financial instability in two ways. The first is via the direct impact on the cost of financing in a floating interest-rate regime; a higher policy rate translating into a higher borrowing rate. Second, if rising interest lowers growth, revenue will grow more slowly for firms. Both these mechanisms can render once-sound projects unprofitable, leaving banks stressed. It appears that this did not find a place in the operating manual that goes with the 'modern monetary policy framework', with inflation targeting as its primary focus, instituted in India in 2015. That our concerns are not purely imaginary is evident in the fact that there has been a growth of non-performing assets of banks even after a change in the method of classification first resulted in their surging in 2015. This feature along with the spectacular collapse of the giant Infrastructure Leasing and Financial Services Ltd (IL&FS) recently point to the need to review the role of the RBI. <br><br> Experience suggests that it must be tasked with far greater responsibility for maintaining financial stability while being granted wider powers. It goes without saying that the Finance Ministry and its nominees on the RBI Board should desist from insisting upon actions that could jeopardise financial stability in trying to quicken the economy. At the same time, the RBI's leadership may want to reflect on the mindset that leads to publicly lecturing the government of India on the fate of incurring the "wrath of financial markets". Whatever be the compulsions of securing the balance of payments, such a view privileges the interests of international finance capital over the public interest in a democracy. It also suggests that the movements in the financial markets are to be treated as the bellwether in economic policy-making. Actually, over the past 30 years, from Mexico to southeast Asia, financial markets can be seen to have been fickle, self-serving and capable of causing great harm as they switch base globally in search of profits through speculation.

What was the reason that stressed the need to review the role of the RBI?