There is a potential for transforming the lives of these excluded groups by providing access to formal savings arrangements and extension of credit by banks for emergency and entrepreneurial purposes, thereby enabling the poor to create assets, generate stable income, build resilience to meet macro-economic and livelihood shocks and bring about an improvement in their financial condition and living standards.
But lower interest rates would also encourage a buildup of more debt, making economic growth more vulnerable to a future shock to the economy. In turn, this could make it harder to achieve the inflation target sometime in the future. Accordingly, bringing financial vulnerabilities into the equation means introducing a degree of flexibility into the inflation-targeting process.