The inflation concerns have forced the central banks of China and Australia to raise rates.These measures will help these countries to be well equipped to fight inflation and suck the excess liquidity from the system.
I remember,a lot of credit was given to R.B.I by many investment bankers post the Lehman crisis.The pro active measures taken by R.B.I during that period helped to insulate the economy from the crisis to some extent,but surprisingly and unfortunately it was the socialistic policies of Indira Gandhi which received more credit from the media and the members of the U.P.A government.
So, the question that arises in our minds is why is the Central Bank dragging its feet when it comes to raising the interest rates?i.e. what has changed in the past 2 years??
Ans:-Nothing much,except for the governor,Reddy was replaced by Subbarao.It is a well known fact that Subbarao is very close to the politicians in Delhi.I think this is the only reason that justifies the silence of the governor.His predecessors both Reddy and Bimal Jalan were definitely amongst the best governors we ever had,but one of the main reasons for their success is the freedom with which they used to operate.They were appointed as governors when the NDA govt. was in power.Therefore some amount of credit must be given to the NDA govt. for letting them function without much political pressure.It is a well known fact that CBI and EC are being run by the stooges of the Congress party,now it seems that RBI is a new entrant to the list.
Well now the question you may ask is why would the govt. not want the RBI to raise rates?
Ans:-The govt. is in need of money.The govt. is forced to borrow from the market because of the failure of the 3G auction.Issues of NTPC(11000cr.1st week of feb.) REC (1500cr.third week of feb.)NMDC(14000cr.2nd week of march) are expected to hit the market.Success of these issues solely lies in the hands of the RBI.It is therefore safe to assume that RBI will be dragging its feet till the last week of March.I do not suggest that there wont be any rate hikes till April,but it would be safe to assume that the rate hikes would be at a slower pace,till the govt. manages to achieve its goals.
hmmm....so who are the losers??
Its us.Inflation is going to be a problem till the government manages to raise funds. Of course Pawar is going to be richer and suicides in Vidharba are going to continue........Jai Hind
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ReplyDeleteGr8 Work Balli!!!
ReplyDeleteI think there is already a meeting called on 27 or 28 JAN to take some action as it was in the NEWS that PM has warned minister to take some action against rising Prices else he would intervene...
I do agree with you. First of let me take this opportunity to give THUMBS UP to you for this Blog thing. We all would share a lot of information through this BLOG.
ReplyDeletecoming back to the topic of INFLATION, yes.. i agree with you that it is the high time the Govt has to increase the Intrest rates and we have achieved 11.75 IIP and majority of the sectors are really getting back on track of normal business. The Govt. has to increase the Interest Rates so that there is a proper check in the liquidity in the market.
well written ...
ReplyDeleteDear Balli,
ReplyDeleteIts really great to read such detailed analysis of your’s regarding the interest rate and your candid approach/opinion regarding the intervention of politics which is actually maneuvering the RBI policies as per the government’s whims.
However I beg to differ with your statements that "one of the main reasons for Reddy and Jalan to be successful is the freedom with which they used to operate. They were appointed as governors when the NDA govt. was in power. Therefore some amount of credit must be given to the NDA govt. for letting them function without much political pressure". I think it is not because of NDA government that these governors have delivered the best during their stint as governors.
I think before the reign of NDA government too there were very knowledgeable and effective governors like Rangarajan, CD Deshmukh, S Venkitramanan etc who have undertaken very comprehensive and astute measures as the situations demanded. During their regime it was the Congress who was in power.
And coming to the point of interest rates, if we look it from a broader perspective RBI can compensate non increment in the interest rates by actually increasing the CRR and SLR rates and thus reduce inflation. This will not only help RBI to reduce inflation but also help the government to borrow from market at a relatively low rates of interest which will ultimately help in reducing the debt of government. So I don’t think that it is really a matter of concern that the interest rates are not rising in proportion to the rate of inflation because there are other ways as stated above to suck the excess liquidity.
However I really appreciate your views but I have stated my frank opinions regarding the issue. Balli, correct me if I’m wrong anywhere. You Rock Balli………..
@aashish,@rahul,@chandni,@amogh.....thanks for ur support
ReplyDelete@amogh....To be very honest,I dont have much say about Deshmukh and venkat's tenure as governors....but i accept the fact that ranga shud feature amongst the list of the top governors that India has had....But do not 4get that PM back then was Narasimha Rao...The functioning of the Congress govt. was quite different under his leadership....
ReplyDeletecmin to your 2nd point....The role of RBI is not to compensate for the govt. errors or to assist the govt. to raise funds at a cheaper rate...The role of RBI is to monitor and take appropriate actions to prevent excess or shortage of liquidity from affecting the system.BTW...the hikes in CRR and SLR have not been significant enough...and dont forget the fact that intrest rate hikes have a multiplier effect....I appreciate your views....feel free to express your opinion....thanks.
Nice job dude ..... sharing of such vital knowledge can really improve our knowledge ..
ReplyDelete