"The mind that is wise
mourns less for what age takes away; than what it leaves behind."
—William Wordsworth
(English, 1770-1850)
Word for the day
Balladmonger (n)
An inferior poet.
Malice towards none
No matter what, one thing is
certain - all politicians sincerely believe that they can fool most of the
people all the time.
The entire social media
campaign of theirs' is predicated on this belief.
First random thought this morning
ViMa, NiMo, MeCh et. al. appear to have made at least one section of
Indians happy and competitive.
The staff of revenue authorities, enforcement agencies and
affected banks are ferociously competing with each other to get an opportunity
to travel abroad to pursue investigation and recovery efforts.
Nepotism, favoritism and opportunism are being demonstrated at
their best level.
Driven by guilt, not conviction
In an ideal situation the monetary policy of an economy is set
keeping in view the following broad objectives:
(i) Neutrality of
money
(ii) Stability of
exchange rates
(iii) Price stability
(iv) Full Employment
(v) Economic Growth
(vi) Equilibrium in the
Balance of Payments.
However, in practice the objective of monetary policy may varys
from country to country and from time to time.
Prior to setting up of Monetary Policy Committee in 2016, RBI used
to follow a multiple indicator approach. Its policy decisions took into account
a variety of factors into, viz., inflation, growth, employment, banking
stability and the need for a stable exchange rate, etc.
The policy making was thus more of a balancing exercise rather
than a directive. RBI would face intense pressures and lobbying from various
quarters. For example, the Government would want lower rates; consumers would
want benign inflation; businesses would want lower rates, whereas savers would
lobby for high rates. Consequently, RBI usually ended up fire fighting and
maintaining a balance to keep all stakeholders happy. In the process it
frequently lost focus and ended up focusing on different indicators at
different points in time.
The primary objective of setting up MPC has been to abandon this
multiple indicator approach and make price stability (inflation targeting) the
primary objective of setting monetary policy.
Now if we analyze the recent policy statements, discussions and
decisions of MPC, it is almost impossible to ignore the strong urge shown by
the committee members to transcend beyond the mandate and transgress into other
areas and thus defeating the very objective of transformation of the monetary
policy framework. From minutes of MPC, one gets a feeling that the body is
suffering from guilt of not being able to support higher growth through better
capacity utilization, poor asset quality of banks hampering credit growth, poor
job creation by corporate sector etc.
For inflation targeting, it seems to be depending more on factor
beyond its control like monsoon, global crude prices, trade disruptions through
actions of various foreign governments, fiscal incentives (HRA, MSP, etc.) that
are being or may be provided by the government; rather than efficacy of the
policy tools available with. The fact is that it has chosen not to use policy
rates to control inflation which was running beyond its target for 6months...to
continue
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