The dark side of low interest rates

While the low interest rate policy may or may not help with investment, output and employment, it can aggravate, if not cause, financial instability

“We should wonder whether lower and lower interest rates are in fact part of the problem …” 
—Raghuram G Rajan, Frankfurt, 2013 

The Reserve Bank of India (RBI) did not make any cut in interest rates in its announcement on October 9. However, the fact remains that the inflation-adjusted repo rate in India is currently anyway minus 3.34 per cent, which is less than the corresponding rates in the US, Europe and Japan. It is true that the inflation-adjusted rates for borrowers in the market are not that low but they are low enough. The low interest rate policy may be