tag:blogger.com,1999:blog-19649274.post6026224597760008638..comments2024-03-27T17:16:12.789+05:30Comments on The Leap Blog: Too sensational: The defence of the rupeeAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-19649274.post-28195198792594352052013-09-04T08:01:33.409+05:302013-09-04T08:01:33.409+05:30There is a nice article by Surjit Bhalla in Financ...There is a nice article by Surjit Bhalla in Financial Express:<br /><br /><a href="http://epaper.financialexpress.com/c/1563562" rel="nofollow">It's the interest rate, stupid.</a><br /><br />It seems to me (and maybe I am wrong, what do I know):<br />a) that the entire crisis is due to fiscal measures affecting food inflation and lack of clarity at RBI regarding what inflation index it is looking at and targeting and its mismanaging of inflation expectations (rather than the actual interest rate policy). <br />b) It seems the gdp deflator is coming down to under 2% while food inflation will be high, probably implying that RBI needed to define a proper index it would target (non-food cpi or something) and use that for monetary policy? That is assuming that RBI/monetary policy can't do anything about food inflation.<br />c) cpi is used for wage inflation both in private and public sector and the govt needs to be held accountable for the food inflation part of it. I wonder if the best way would have been to make the gdp deflator be the cpi. Does that make sense? We would be recording -ve growth now and lower growth in the past couple of years if this was done. That would certainly have got the govt's attention.<br /><br />RBI could have actually cut rates if non-food inflation has been lower as suggested in the article. But, RBI needed to be clear on its policy objectives 3-4 years back. It needs to define whatever index is appropriate and maintain the credibility of maintaining a target on it. Right now, it seems its all over the place and it doesn't know what it wants to do on inflation targeting, even without the short term measures of the last couple of months. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-15242517864748029302013-08-24T22:01:20.222+05:302013-08-24T22:01:20.222+05:30"...Even these metallic problems have their m..."...Even these metallic problems have their melodramatic sides."<br /><br />Loved it. Thanks for the quote. Shows how the more things change, they remain the same.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-32475694973530968622013-08-22T18:29:06.232+05:302013-08-22T18:29:06.232+05:30Nifty does not really reflect the mayhem of RBI...Nifty does not really reflect the mayhem of RBI's moves. Look at the CMIE Banking Index, its down 31% since 15th May 2013 (and 22% since 15th July 2013), thats a third of the mcap weighted banking index! The equal wtd index is even worse!<br /><br />RBI has probably ended up doing what the Bank of England did in the 90s, tryin to fight the market, when there is no way you could have in the first place. Bank of England, too raised short term interest rates, but ended up helping the likes of George Soros with billion dollar profits, I am pretty sure this rout would have resulted in many such currency trading heroes for the next decade!<br /><br />Eventually, BOE backed off and let the pound depreciate which eventually helped England recover (i.e. lowered inflation in the coming years and improved export earnings, thanks to improved competitiveness owing to current devaluation). <br /><br />How difficult was it for the RBI to let the same happen here? Ravi Purohithttps://www.blogger.com/profile/17616076999283569192noreply@blogger.com