Thought for the day
” Reform is not pleasant, but
grievous; no person can reform themselves without suffering and hard work, how
much less a nation.”
-
Thomas Carlyle (Scottish, 1795-1881)
Word for the day
Lambent
(adj)
Dealing lightly and gracefully with a subject; brilliantly
playful:
(Source:
Dictionary.com)
Teaser for the day
Why should there be an age limit for joining civil
services?
Would it not be useful if people with 10-15years of work
experience join civil services?
Between lines
The RBI governor obliged the consensus on Tuesday by keeping the
policy stance on expected lines. From that viewpoint there is little to comment
on the policy stance. In fact in the press briefing post policy announcement,
the governor sought to impress the media that it is his conscious effort to
make the policy path as predictable as possible.
However, refusing to be drawn into the intended boredom over
this periodic ritual, I read a lot in between the lines in the four page policy statement.
First of all, a between the lines reading gives me an impression
that the governor is not quite comfortable with the movement in the financial
markets in past few months.
He attributed a large part of the buoyancy in financial markets
to a global trend with its root in the "assurances of continuing monetary
policy support in industrial countries". The emphasis on the vulnerability
of financial markets to "changes in investor risk appetite driven by any
reassessment of the future path of US monetary policy or possible escalation of
geopolitical tensions" and the consequent discomfort is rather conspicuous
to me.
Secondly, the governor sought to convey the thought that while
the inflation has shown some moderation since June policy statement, the
monetary policy would have played little role in this moderation. Most of this
could be due higher base effect and lower global commodity prices.
He also highlighted that the government, through reform in
administrative price mechanism (APM), could be a significant contributor to
inflation in coming quarters. Therefore, "the upside risks to the target
of ensuring CPI inflation at or below 8 per cent by January 2015 remain".
Accordingly, the statement reads, "The balance of risks around the
medium-term inflation path, and especially the target of 6 per cent by January
2016, are still to the upside, warranting a heightened state of policy
preparedness to contain these risks if they materialise".
Thirdly, and most importantly, RBI's assessment about growth
pick up sounds circumspect. The policy statement implies that better export
demand is supporting manufacturing and service sector activity. The current
easy liquidity conditions and slack credit demand implies that the current
estimate of 5.5% growth (5-6% range) could be sustained only if (a) external
demand picks up; (b) the environment becomes and remains conducive to the
revival of investment and unlocking of stalled projects (c) fiscal
consolidation releases resources for private enterprise.
RBI thus appears captive at the hands of central bankers in the
developing economies, especially US Federal Reserve, the political
establishment's commitment to fiscal consolidation and private sector's ability
to effect necessary improvements in their balance sheets to become creditworthy
again.
With so many constraints and dependencies, no wonder the only
thing RBI has to sell is predictability of policy direction (boring!) and thus
taking the attention away from it!
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