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8 - THE INDIAN RATE OF DISCOUNT

Published online by Cambridge University Press:  05 November 2012

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Summary

The presidency banks publish an official minimum rate of discount, in the same manner as the Bank of England. As an effective influence on the money market the presidency bank rates do not stand, and do not pretend to stand, in a situation comparable in any respect with the Bank of England's. They do not attempt to control the market and to dictate what the rate ought to be. They, rather, follow the market and supply an index of the general position.

It is, therefore, as the best available index to variations in the value of money in India that the presidency bank rates are chiefly interesting; and it is in this capacity that I shall make use of them in this chapter.

If we are to use these rates, however, as an index, a few warnings are first necessary. There is, of course, in India, just as there is in England, not one single rate for money, but several rates according to the period of the loan required (or the maturity of the bill negotiated) and the character of the security offered. The published bank rate in India represents, I believe, the rate charged day by day for a loan advanced on such security as government paper. The interest on a loan of this kind, that is to say, is calculated day by day at the published bank rate prevailing on each day.

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Publisher: Royal Economic Society
Print publication year: 1978

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