Thought for the day
“Honesty is the cruelest game of all, because not only can
you hurt someone - and hurt them to the bone - you can feel self-righteous
about it at the same time.”
-
Dave Van Rank (American, 1936-2002)
Word for the day
Squib (n)
A short and witty or sarcastic saying or writing
(Source: Dictionary.com)
Teaser for the day
Joke of the century
“The government of the day had no role in 1984 Delhi
genocide.”
Rajan paints the town red
The RBI governor Raghuram Rajan appeared a much worried man as
he made a statement on the RBI monetary policy yesterday. Contrary to the
market expectations, and much to the chagrin of his political bosses and large
borrowers, he not only raised the policy rates but also smashed all claims of
economic revival having taken firm roots.
Despite reluctant euphemism and smart camouflaging, the picture
he painted was distinctly red. I have been repeatedly (and irritatingly to
many) highlighting the following concerns, many of which also found place the
RBI’s policy statement.
(a)
Global economic recovery at present is mostly an
American phenomenon. EU, Japan and China are still struggling and appear
fragile.
(b)
US might have successfully exported sub-prime
crisis & deflation, and embarked on the path to necessary monetary
correction. But financial market contagion remains a clear potential risk, as
financial systems in many emerging markets (especially those heavily dependent
on commodities’ demand), EU, Japan and China remain vulnerable.
(c)
Domestic economic conditions in India remain
worrisome and more likely to worsen further before any improvement is seen.
Most macro parameters e.g., investment, employment, savings, inflation, and
consumption have deteriorated despite decent pick up in agriculture growth.
Fiscal tightening in 2HFY14 is likely to make the slowdown even more
pronounced. RBI expects FY14 growth to remain below 5% and a small pickup in FY15
to 5.5%.
(d)
Despite bumper monsoon, consumer price inflation
continues to remain in double digit. RBI expects it to moderate only slightly
to 8.5% in next 15months. On the other hand core inflation has started to raise
it head again. RBI finds that Hardening prices of services and key
intermediates seen in conjunction with rising bank credit, increase in order
books, pick-up in capacity utilisation and the decline in inventories of raw
materials and finished goods in relation to sales suggests that aggregate demand
pressures are still imparting an upside to overall inflation.
(e)
By saying that RBI may not tighten the policy
further, the governor probably hinted that growth probably has reached the
breaking point and it may not be able to take any further rate hike. This makes
the task of achieving growth-inflation equilibrium even more complicated.
Especially when the global interest rates are likely to firm up, pressure on
INR is likely to accentuate, and new government is likely to assume office
burdened with humongous expectations.
(f)
The ad hoc measures taken to control CAD and
stabilize INR since September 2013 might have to be reversed at some point in
time. As the finance minister himself admitted to large scale gold smuggling in
recent months, there is no evidence of any structural improvement in conditions
and it continue to remain a cause of worry.
May be I am reading too much into the Governor’s body language.
But I cannot help, as it fully corroborates what I am witnessing during my
journey across the country and also my interaction with the corporate managers.
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