Finally, RBI takes Charge !

RBI has raised the repo rate by an unexpected 50 basis points today. This is the first time the central bank has taken a bold stand in the past one and a half years or so in which inflation has been galloping almost uncontrolled. It is sad to recall that the central bank has been treating the ever rising inflation with kid gloves and it even seemed that the Bank is not in control of the situation. But the tragedy is that the lethargy at the RBI has lead to a situation where the higher inflation has become entrenched in the economy and it may require even higher rates to remedy the situation. 

Even if it is rhetorical, some firm interest rate action at the start of the rising inflation curve would have been more effective than the initial eye in the sand mode in which it operated initially. The shock and awe of such an initial strong action would have created lesser hassles than the late in the cycle tightening which will lead to more damage to the long term economic growth.

    

Yeah, the latest RBI action once again forces one to recall the wisdom in the old saying !  Yeah, it says ' a stitch in time saves nine !'        

Some previous posts on the subject :

 Is this Monetary Policy on Non- Policy ?

 Does Inflation Affect the Nifty Valuations ?


 RBI Willing to Strike, But Afraid to Hurt Again !

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 Disclaimer: No research, information or content contained herein or in the accompanied spreadsheet shall be construed as advice and is offered for information and educational purposes only. We shall not be responsible and disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered by the user or any third party as a result of or which may be attributable, directly or indirectly, to the use of or reliance on any information or service provided. All files/information is provided 'as is' with no warranty or guarantee as to its reliability or accuracy. We do not recommend, promote, endorse or offer any guarantee whatsoever in respect of any services or products offered in the advertisements displayed on the site by Google AdSense.

RBI and Inflation

   Is This Monetary Policy or Non-policy ?

Heard on the Street : Many comments were heard from many sections of the society about an event, which now a days has become a big media circus, especially for the financial media. As is normal now, a big hue and cry is  generated much before, during and after the event. Here are some side comments heard on the street, which,  normally, isn't heard in the open.

• Thank god it's over, never makes any difference on the ground, but then, why all the hue and cry ?

• Haven't you heard the saying - ' Every dog has it's day ' ?   It's one of those days on which the nation's accountants get their share of  the media highlight.

• But, who will bell the inflation cat ?  RBI says it's not their business ? Or what does the expected inflation rate of  7 % mean ?        

• It  means that they were simply hoping, for the last three years or so, that inflation will go away and they are afraid that their hopes are being belied by this time !  ( BTW, they also buy onions ! )

• Might be very disappointing to them ?

• But why ? No one is going to blame the RBI. Besides the FM has given 100 % marks to the non-policy. So far so good and the Guv is enjoying all the attention he can get.

• Yeah, His Masters Voice !   But what happens to the economy ?

• Who cares ! Let it go to the dogs !

• Why are the big fat bankers  talking alarmingly about the liquidity crunch ?

• Hey, they are showing the withdrawal symptoms and they simply don't want their gravy train to stop ! So, they are not interested to give real interest rates to the depositors either, because it may affect their fat bonuses of both the kinds !

• What about the business leaders ? They say they are concerned about the diminishing growth ?

•  Who would like to lose the big set of concessions and the free money ? That is their concern.

Interview with the PM :

Question :  What is your view on the latest money policy ?

PM  :   We consider money as very important and we are still trying to get the maximum details from  the Swiss authorities. But our hands are tied by the various international treaties.  Actually we are at the mercy of them because we can't even do anything about the information we have received so far.  And if you were asking about the 2G money, how can I count the money which the government has not yet received. But I assure that no money received will be left uncounted.

This is one of the last comments heard from the aam admi :

•  Why on earth this circus is still called a credit policy when in real life, they are robbing whatever is left  in the already empty pocket of mine  ?  Why don't they call it their debit policy ?  

Heard at a party of robber barons ( business magnates, bankers and politicians ) :  



" After all, whose money is it any away ?  Let's all party and rob it till the money lasts !!! " 





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Disclaimer: No research, information or content contained herein or in the accompanied spreadsheet shall be construed as advice and is offered for information and educational purposes only. We shall not be responsible and disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered by the user or any third party as a result of or which may be attributable, directly or indirectly, to the use of or reliance on any information or service provided. All files/information is provided 'as is' with no warranty or guarantee as to its reliability or accuracy. We do not recommend, promote, endorse or offer any guarantee whatsoever in respect of any services or products offered in the advertisements displayed on the site by google adsense.

Some Thoughts on Interest Rates

  RBI Willing to Strike, But Afraid to Hurt Again ... !!!

The RBI has once again announced  mild hikes of interest rates at the face of accelerating inflation. The repo and reverse repo rates  were hiked by 0.25 and 0.50 % respectively by the RBI today. The last hike did not lead to any hikes in the rates by the Banks on the ground. Going by the reaction of the markets, Tuesday's action too may become inadequate to tame the inflationary expectations. The RBI still expects the inflation to fall to 6 % levels by the next March. However, it may be remembered that inflation was expected to fall to 5.5% by the last March too. ( It seems that the base effect has not been bailing out the 'expert' predictors ! ) So much for the too accommodating policies of the present managers of economy.

Bye the way, no one needs to be an accomplished economist to understand the situation. Just check up the interest rates of one year bank deposits and compare it with the Government's own inflation figures. You can see that the interest rate is much below the inflation rate and therefore, the depositor actually loses his  purchasing power, by making the deposit. This is called negative interest rate and it kills the savings of the depositors and  robs the poor.   

Now, one may ask who are the beneficiaries of these negative interest rates. Of course the big borrowers including the government are the ultimate beneficiaries of the negative interest rates. Even though a bit of mild inflation is supposed to be good for growth in the economy, run away inflation may lead to bubbles and the subsequent busts as happened in the Nineties. The world has not yet been able to recover from the well known busting of the Greenspan bubbles. Do we need another one of the desi variety ?

 
© 2010, momentumsignal.blogspot.com All rights reserved.

Disclaimer: No research, information or content contained herein or in the accompanied spreadsheet shall be construed as advice and is offered for information purposes only. We shall not be responsible and disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered by the user or any third party as a result of or which may be attributable, directly or indirectly, to the use of or reliance on any information or service provided. All files/information is provided 'as is' with no warranty or guarantee as to its reliability or accuracy.