Effects of financial globalisation on interest rate differentials in India
Keywords:
financial integration, interest rates, capital flowsAbstract
India initiated a number of reforms in 1991, after opening up of the economy to the Global world. India’s integration with the global economy increased trade and accelerated economic growth. The outcome of the process of Globalisation and integration of the Indian economy has also led to integration of India’s financial market with the rest of the world. As an outcome of this process, there has been an excessive Capital inflow to the Indian economy exerting pressure on the asset prices. The purpose of this paper is to explain the impact of financial sector reform on Interest rate differentials in India. This study tries to focus on the sensitivity of interest rate differentials as a consequence of changes in the global economy, and its effects on the people. Though at the aggregate level, the inflow of Capital has created surge in economic activities and increased demand and supply, but the question of interest remains whether certain sections of the population have been overlooked. It has however been found that difference in deposit rates and various lending rates became wider because of financial integration. To sustain growth, micro economic issues needs better attention along with macro-economic targets.
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