"In the current circumstances, lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth," the bank's governor, Duvvuri Subbarao, wrote in the monetary policy review.
"This will be welcome news for SSE's customers and shows that the government's work to reduce energy bills is working by lowering policy costs and driving competition.
The bank progressively lowered its policy interest rate through the 1990s, hitting zero in 1999, but was reluctant to try more unconventional policies.
First, it lowered its policy rate from 0.1% to a range between zero and 0.1%.
Having lowered their policy rates to near zero, they have engaged in increasingly extravagant measures such as "quantitative easing" and "forward guidance".
Faced with sinking asset prices, insolvent banks, moribund growth and deflation, the Bank of Japan (BoJ) eventually lowered its policy rate to zero in 1999.
Third, in response to slower growth and lower inflation (owing partly to lower commodity prices), the world's major central banks pursued another round of unconventional monetary easing: lower policy rates, forward guidance, quantitative easing (QE), and credit easing.
But with tax-rebate cheques arriving in the mail, a dose of fiscal stimulus is imminent.A growing chorus worries that ever lower policy rates are adding to America's problems.
More important, if they succeed in even modestly loosening the money markets, they will reduce the pressure on central banks to use the broader tool of lower policy rates.
For example, some empirical and simulation evidence suggests that the responsiveness of policy to the output gap, given by the parameter b in the Taylor rule equation, should be higher than the value of 0.5 originally chosen by Taylor.6 Higher values of b lead the Taylor rule to recommend somewhat lower policy rates during recessions and their aftermaths.
