Is the policy interest rate too high, too low or just right? The policy rate which anchors the structure of interest rates, known as the repo or repurchase rate, is only one of several monetary policy instruments used by the Reserve Bank of India (RBI). However, it is mainly the repo rate that is the subject of much debate. Recently, two of our leading economists engaged in an open debate on this issue. Economic Advisory Council member Surjit Bhalla published a pugnacious critique of senior Bhartiya Janata Party leader Yashwant Sinha’s earlier broadside against the government’s mismanagement of the economy (The Indian Express, 29 September). Subsequently, former National Statistical Commission chairman Pronab Sen published a detailed rebuttal of Bhalla’s critique (The Indian Express, 11 October). Their exchange covered a range of issues, but this column is limited to issues raised by them regarding interest rate policy. For purposes of transparency I should mention that as professional colleagues some of us discuss these policy issues privately. However, Sen has suggested that given the topical importance of the interest rate question, our discussion on this issue should be in the public domain. Hence this article. The question of interest rates has been approached from two distinct perspectives in economic theory, both of which were mentioned by Sen. Grossly oversimplifying, we may describe these as the perspective of normative economics, the economics of what ought to be, and the perspective of positive economics or the economics of what is. Both approaches offer a framework of principles for determining the optimal rate of interest, but neither framework can translate those principles into an actual number. At the end of the day, judgement is required in deriving an optimal rate of interest based on either approach. The normative approach is due to Frank Ramsey, a student of John Maynard Keynes. Ramsey was a brilliant Cambridge philosopher, mathematician and economist.