Interest Rates


When the interest rates are high, the manufacturing industries slow down capital investment to avoid bearing high cost of investments and hence lead to flattening of long term growth.
When the interest rates are low, the manufacturing industries intensify capital investments, leading to higher levels of automation and hence leading to increased levels of unemployment in the long term.
Off course, it is much more complicated than that but what is the right interest rate to have?

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One Comment

  1. In my view, investment decisions of manufacturing industries depends more on market sentiments and demand predictions than rate, assembly lines never should remain idle, whether it is low or high rate of interest. Assembly lines can remain idle when products are not selling, that’s the biggest loss factor. Thats why we are seeing lots of schemes, offers and product push by the automobile companies now a days. It is better option for them to produce cars/vehicles and sell them at much lesser margin than keep the plant (read investment) idle

    Reply

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