Further, it may be argued that once the markets realize that bonds – particularly short-term paper – are more likely to be written down in a crisis, the costs of bank financing in normal times are likely to rise. A similar issue was discussed about a decade ago, when the IMF pursued the possibility of a sovereign debt restructuring mechanism (SDRM).
Even the emerging and developing economies (EDEs) which traditionally had very high inflation showed an average annual inflation at 6.7 per cent. India’s inflation performance was even better at 5.2 per cent as measured by WPI and 4.6 per cent measured by the consumer price index (CPI-IW).