If only life were so simple.

It happens every month. As inflation figures for the previous month are revealed a concerted howl for interest rate cut goes up from our business fellows. Lower interest rates reduce the cost of borrowing which makes it easier to set up new projects, which create new jobs, leading to greater consumer demand, which demand more new projects, which create even more jobs, in a virtual cycle, leading to faster economic growth, creation of wealth and reduction of poverty. All very simple which even a 2 year old child will understand. Surely, there can be no doubts or debates about something so beneficial. But we know that our business fellows, as business fellows everywhere, have very dubious ethics and so we have to wonder whether their demands for lower interest rates have anything to do with the good of the nation or to fill their own pockets. We should remember the warning issued by Adam Smith way back in 1776. Half the super rich in India like to invest in real estate and a whopping 87% are thinking of buying more in the near future. Real estate is where the really rich hide their black money and borrow the rest from banks which allows them to pay lower taxes on rents by subtracting the interest paid on the borrowed money. The lower the rate the more they can borrow and the more real estate they can buy. No harm, except that banks pay lower interest to savers which reduces the spending capacity of those who depend on their savings for survival, especially the elderly. So lower interest rates result in the transfer of wealth from savers to borrowers. But is inflation really under control? The Wholesale Price Index has fallen 4 months in a row, having fallen by 2.06% in February. It fell by 0.39% in January. Core inflation, which is measured after removing volatile products, such as food and fuel, is also declining. This is supposed to reflect consumer demand so a lower interest rate may stimulate demand by allowing people to buy on credit. People usually buy cars and houses with loans but use cash for everyday shopping. The trouble is that Retail Inflation, which is what we have to pay to survive, went up from 5.2% in January to 5.4% in February. Food inflation was 7.74% in February from 8% in January. It will probably rise further when the weather turns hotter. If oil and commodities are so much cheaper why are costs not declining? And if we are constantly having to pay more for products for daily use we have less to spend. Artificially stimulating demand by lowering interest rates will result in higher retail inflation, a simple truth that the Congress never understood. If the Federal Reserve starts raising interest rates in the US the dollar will get stronger which will translate into higher costs for imports, especially oil. If life was so simple Brazil would not have raised its rates just recently. Perhaps fellows should read the news.