Interest rates and asset prices

Low interest rates in a downturn tend to push up asset prices (and high interest rates in a boom can lower asset prices).

The Reserve Bank of India (RBI) has kept the (real) interest rates at extremely low levels. As we know, prices of many assets, and not just bonds, are inversely related to interest rates. And, the sensitivity can be quite high — more so, if we allow for a rise in financial leverage due to low interest rates. So, prices of many assets are higher in India (and elsewhere) than they would have been otherwise.

It is true that the RBI is concerned if we have considerable irrational exuberance or extremely low sentiment in the asset markets. It is, however, interesting