Productivity, lower interest rate and stability...

Higher productivity or production means lower prices which increases competitiveness, demand and market share... Lower prices further lead to lower nominal interest rate and higher real interest rate, lower prices or inflation increases real interest rate and higher savings and investment and expectations... Lower cost of capital increases its productivity or productivity lowers cost of capital... The oppourtunity cost of using capital or capital intensive techniques is low which lowers unemployment upto full employment, after which wage cost and inflation increase... Full employment is the real constraint on productivity, higher wages would limit expansion or higher wage cost also increases price and price expectations and interest rate and expectations, but if cost of capital is kept low it could compensate the wage cost and increase supply, also through (international trade)... In this situation, a higher nominal or lower real interest rate and expectations because of inflation and expectations would set the contractionary forces double when we need stability and not the next slowdown... A higher ratio of cost of capital and labour would make the economy uncompetitive when higher wages would lower the capital and labour cost ratio... A lower cost of capital and higher wage cost would increase demand competitiveness and demand and growth, means more competitiveness and growth...

A stable or lower interest rate and expectations or lower money that goes for interest payment cost/prices could help slow the deleveraging and would also promote demand for loans and spending and growth... It would also contain fiscal debt...

The objective of the monetary policy is to stabilize inflation and inflation expectations at full employment ie the goal of price stability and full employment... And, not to lower demand and prices and expectations, but keep them stable, to increase supply and prices and expectations to keep growth and growth expectations high... The RBI's neutral stance or real interest rate is just right to keep prices and unemployment stable, if not accommodative... and a stable natural real interest rate and expectations could help more to increase investment employment and growth, than rate hike and rate hike expectations... INDIA's woes due to volatile food and fuel prices could be directly attributed to low investment in agricultural and fuel or oil production... and a low borrowing cost would help increase supply...