Interest Rate Policy for Economic Development

Abstract

This article offers basic theoretical framework for the foundation of interest rate policy in a country like Thailand, which is facing saving constraint and unlimited investment opportunities. The objective of interest rate policy should be to promote growth in monetary saving and conducive to financial development with emphasis on the reduction of the size of unorganized money market. The article reviews major proponents of interest rate policy and suggests the portfolio approach to interest rate policy with particular emphasis on deposit rate to increase the demand for financial assets in real term rather than excessive preoccupation with loan rate, which is currently quite low in the organized financial sector.