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Review of interest rate policies in selected developing countries 1970-1982 (English)

The development policy concept of governmental raising of interest rates to positive levels as a means of influencing financial sector performance is reviewed and questioned here in light of the experience of ten developing countries. The paper shows that in nine of the ten countries, two different results occurred as a result of governmental intervention in interest rates. The first outcome shows low inflation and mildly negative real rates which average only a few percentage points below the corresponding averages of industrialized countries. The second result shows high inflation and highly negative real rates which average ten to twenty five percentage points lower than those of the industrialized countries. Besides direct and indirect interest rate controls, the governments in the sample countries intervened extensively in financial markets to affect the allocation of resources. This intervention included large directed credit programs, public ownership of financial institutions and public sector borrowing. The paper goes on to conclude that narrow concern for raising real interest rates to positive levels should give way to broader concerns for improvements in the financial system as a whole and for greater consistency between financial and macroeconomic policies.

Details

  • Author

    Hanson, James A. Neal, Craig R.

  • Document Date

    1986/06/30

  • Document Type

    Departmental Working Paper

  • Report Number

    IAF14

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World,

  • Region

    The World Region,

  • Disclosure Date

    2010/07/01

  • Disclosure Status

    Disclosed

  • Doc Name

    Review of interest rate policies in selected developing countries 1970-1982

  • Keywords

    real rate;real interest rate;real interest rate on deposits;uncovered interest rate parity;implications for development;deposit rate;nominal interest rate;financial sector policy;high real interest rate;positive real interest rates;interest rate policy;flows of international capital;structure of interest rates;high rates of inflation;average rate of inflation;negative real interest rate;real rate of interest;nominal rate of interest;Economic Rate of Retum;lending rate;real deposit rates;financial market;interest rate control;direct credit;interest rate structure;short term credit;financial sector liberalization;exchange rate policy;allocation of resource;Exchange rate policies;open capital market;public sector borrowing;Effective interest rate;allocation of credit;decline in inflation;inflation rate;rate of change;consumer price index;impact of tax;domestic financial market;world interest rate;average inflation rate;international capital market;high inflation rate;interest rate regime;supply of credit;domestic foreign currency;domestic interest rate;rate of devaluation;foreign currency deposit;debt service burden;types of instrument;increase in inflation;higher interest rate;world financial market;exchange rate reform;price to consumer;terms of lending;public sector deficit;interest rate liberalization;portion of total;financial market liberalization;financial sector reform;effective tax rate;interest rate differential;availability of data;official exchange rate;degree of fragmentation;prime lending rate;Freely Convertible Currency;transfer of fund;treasury bill rate;open financial market;government policy instrument;domestic resource mobilization;domestic financial sector;foreign exchange market;macroeconomic policy framework;foreign currency transaction;international capital flow;balance of payment;financial system;term deposits;

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Citation

Hanson, James A. Neal, Craig R.

Review of interest rate policies in selected developing countries 1970-1982 (English). Industry and finance series,no. IAF 14 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/745571468765281898/Review-of-interest-rate-policies-in-selected-developing-countries-1970-1982