They want to be in surplus, we want to be in deficit.

Monetary policy, which means interest rate, is ineffective in controlling inflation, as "it is amply clear that central banks have influence only over one sort of inflation -- and that is the inflation of asset prices -- and not over goods and services that they ostensibly are targeting," wrote A Nageswaran. "With their unconventional monetary policies, they have been remarkably successful in stoking asset price inflation and have been disasters in stoking inflation of the regular variety." Possibly, central banks have failed to stoke inflation because governments were working against them. Europe resorted to austerity, imposed by Germany, which severely limited government spending, increased unemployment and cut economic growth. Paul Krugman has been a vociferous critic of European austerity, blaming it for the fall in growth rates. Austerity is the exact opposite of what John Maynard Keynes  recommended, which are increased government spending and lower taxes to stimulate economic growth, even if it increases fiscal deficit. Krugman is opposed by B Steil, who shows that nations with independent monetary policy can grow despite tight fiscal policy. That is the problem with Europe. The 19 countries of the Eurozone are bound by a common monetary policy set by the European Central Bank. The Republicans in the US want to cut trillions in government spending on social programs to balance the budget. Interest rate worked in controlling inflation in the US when Paul Volcker increased it to 15%, causing 2 recessions. So policy rates do work if central banks have guts and governments cooperate. While rich countries are battling with low inflation, deflation in Japan, India is consistently battling high inflation, which jumps to double digits at times. K Shashidhar argued that raising policy rate in India is of little use because inflation is driven by supply side constraints and high interest rate may make inflation worse by increasing house rents. That implies that the Reserve Bank should remain a passive spectator as retail inflation zooms out of control and the rupee dives. High inflation between 2009 and 2014 "had a lot to do with a reckless fiscal policy kept too loose for too long, one which also dominated monetary policy by forcing the central bank to monetize a portion of the fiscal debt". Since the government borrows to fund its fiscal deficit a high policy rate will concentrate the minds of politicians before indulging in wasteful spending. "Despite very low unemployment rates in the US, UK and Japan and in many countries in the Eurozone, wage growth remains remarkably restrained," wrote Nageswaran. But in India, salaries are projected to grow at 10% despite there being no growth in jobs. A high policy rate is essential in India. To bring discipline.