So RBI didn't cut rates yesterday and people all around were disappointed. It is not just people related to stockmarkets or corporates but even people like existing and new home loan and car loan borrowers. I don't blame people for expecting a rate cut very badly. When you are part of an economy that has been growing so fast, it is natural for people to extrapolate where they can reach if they continue to grow at the same rate. And then not to be able to do so can be a difficult reality to accept. My guess is that RBI in its Hyderabad brainstorming where they made plans on how to tackle an European contagion after a possible disorderly exit of Greece, had planned for many scenarios. By yesterday morning it was too clear from Greek election results that there was going to be no disorderly exit of Greece from the Euro which had for the time being, spared the world some serious pain.
RBI doesn't really have too much of headroom. For all its tinkering of rates, it has not been able to do too much on its number one objective: inflation control. And how can it be effective? Monetary policy has to work in tandem with fiscal policy and normal policy implementation. I was interacting with a very senior and now retired FinMin official yesterday after a radio show that I moderated. He told me what we all know. The bureaucrats have stopped taking decisions and not acting on files. As I see it, RBI is saving its limited blessings for any nasty surprises that may spring from Europe in the future. Although the Greek mess, after the election doesn't look as menacing as some people have thought, it is the larger economies of Spain and Italy whose lack of access to capital markets in the future is what may create more headaches for all across the globe. In this backdrop, can people expect anything positive in the days to come? Well, I will just point to my last post. I continue to believe that there will be a renewed reforms burst during August-November 2012 just after the Presidential elections. Of course, Pranab Mukherji needs to win that election. I suspect that there will be some serious progress made in Direct Taxes Code and Goods and Services Tax areas along with pensions reform. These are areas where the major opposition party, the BJP, has chaired Parliamentary Committees and made recommendations in favour of reform. Their party persons seem to be quietly resurrecting DTC and GST. We can even have progress on FDI in aviation. If the government can get an FDI hike in insurance to 49 per cent, it will be a bonus. Thanks to a higher base effect inflation figures may not look that disturbing.. Is this what I want to see happen or is this more likely to happen in my view? I think I will emphasise on the latter.
RBI doesn't really have too much of headroom. For all its tinkering of rates, it has not been able to do too much on its number one objective: inflation control. And how can it be effective? Monetary policy has to work in tandem with fiscal policy and normal policy implementation. I was interacting with a very senior and now retired FinMin official yesterday after a radio show that I moderated. He told me what we all know. The bureaucrats have stopped taking decisions and not acting on files. As I see it, RBI is saving its limited blessings for any nasty surprises that may spring from Europe in the future. Although the Greek mess, after the election doesn't look as menacing as some people have thought, it is the larger economies of Spain and Italy whose lack of access to capital markets in the future is what may create more headaches for all across the globe. In this backdrop, can people expect anything positive in the days to come? Well, I will just point to my last post. I continue to believe that there will be a renewed reforms burst during August-November 2012 just after the Presidential elections. Of course, Pranab Mukherji needs to win that election. I suspect that there will be some serious progress made in Direct Taxes Code and Goods and Services Tax areas along with pensions reform. These are areas where the major opposition party, the BJP, has chaired Parliamentary Committees and made recommendations in favour of reform. Their party persons seem to be quietly resurrecting DTC and GST. We can even have progress on FDI in aviation. If the government can get an FDI hike in insurance to 49 per cent, it will be a bonus. Thanks to a higher base effect inflation figures may not look that disturbing.. Is this what I want to see happen or is this more likely to happen in my view? I think I will emphasise on the latter.
It seems it is not only the stock markets which are driven by sentiments, even the RBI is.
ReplyDeleteNice one Udayan.