RBI - Raghuram Rajan's new joke !

The Finance Ministry recently announced that it will provide banks with additional liquidity so as to finance cheap loans for automobiles & consumer goods this festive season; to help the middle class population of our country. Though announced by the Fin-Min, but what is amusing and surprising is that this was done after taking a nod from the RBI governor. Ahem!

The RBI governor who in his previous review of the monetary policy said that it is imperative for the RBI to target and fight inflation first and then look for recovery and growth in the economy had hence increased repo rate by 25bps. This was seen as a move to reduce and contain inflation, which is still at a level more than the reserve banks comfort level. And then soon Fin-Min announces a release of liquidity into the system by providing cheap loans.

Even a naïve will know

INR @ 58 to a US Dollar

The INR touched never before seen levels against the U.S. Dollar. It touched levels of 58 today. Also there is no dearth of analysts predicting further gloom for the INR. The reasons are the same which have been repeated time and again, High CAD & Fiscal Deficit coupled with policy inaction. Also sometimes there is a talk about the worldwide recession.

These factors have been present for some time now. But has the Indian Govt. thought about it seriously. Or is everyone too busy struggling to keep their powers/posts intact, which is now evident from a recent spat in one the political party for the top spot.

Whatever the finance ministry or the RBI claim about the health of Indian Economy, the way INR has tumbled against U.S. Dollar today (close to 1.5% down in a single day)

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GDP Data - May 2013

Today’s GDP data of 4.8% hasn’t come as a shocker and is in line with what was expected. Our Prime minister’s dream must have shattered after he announced yesterday that the days of 8% GDP aren’t far away, during his Japan trip.

Today’s GDP data has made history as now FY13 will go down as the year the country clocked its slowest growth in a decade. Even after all this the government hasn’t learnt much. It is gripped with policy paralysis not to mention the corruption cases coming out in multitudes on a routine basis.

Inflation - Too early to flutter with it

The recent inflation data both CPI & WPI have come in the comfortable range of RBI, but there is need to exercise caution.

The basic cause of inflation in India is supply chain bottlenecks. The constraints that are in supply chain from farm to fork still persist. Though RBI has been able to claw down inflation by increasing interest rates at various occasions, but it has also curbed consumption. Consumption theory was the only USP, which was being showcased to the world that India had. To reduce inflation by reducing consumption is not the way to go forward. It shows RBI’s, the Finance Ministry’s and on the whole Indian Government’s short sightedness to tackle the issue.