World moving toward zero interest rate? India unlikely to join

The latest interest rate cut in the US has sparked speculations that a number of major economies across the world, including the US, Japan, England and Australia, are moving towards a zero-per cent regime, but bankers differ about India.

The rates have not been below the current level of one per cent in the US in the past five decades, but Japan had kept a zero-per cent rate policy for most of the time since 1999 till March 2006.

The US central bank, the Federal Reserve, yesterday cut its benchmark rate by 50 basis points to one per cent, while the Bank of Japan is meeting tomorrow to review its rate.

There are expectations for a cut in Japan's rate from its existing level of 0.5%, which is already the lowest for any industrialised economy in the world.

While expectations are building up for further rate cut in India as well, the bankers here believe that a zero-level rate does not seem likely even remotely.

"That (zero per cent interest rate) looks very difficult in India.Given the liquidity situation and macroeconomic factors, interest rate below one per cent seems a highly unlikely proposition," UCO Bank Chairman and MD S K Goel said.

But, it is not the case with the US and Japan, as well as some other economies where a zero-interest rate is being talked as quite a possibility in the current economic scenario when borrowers are hard to find and liquidity is not enough.

Under a zero interest rate policy, which is also known as Quantitative Monetary Easing Policy, a central bank uses money supply, rather than interest rate, as the main monetary easing tool.

When Japan slashed its benchmark rate to zero for five years between 2001 and 2006, it was mainly to fight deflation concerns and revive economic growth.