Do it yourself

  “Kaya lag raha hai?” (How is it looking?) I am sure most of the financial market participants must be overwhelmed by this question in the past week. Obviously there is no accurate answer to this question in the present uncertain and volatile times. Regardless, every market participant is trying to answer this inquisition to the best of their ability and understanding of the situation. As the situation is still evolving and new complexities are getting added with each passing day, it is natural that the answers to this question will keep changing every day, and sometimes even within the same day. If I have to answer this question as someone who is an independent observer of the markets, I would prefer to take a myopic view of the market rather than getting influenced by the hourly news flow. Also, I would mostly remain focused on the Indian markets, as my lenses do not show me the long distance view. For example, I am incapable of commenting on the likely effect of the Russia-Uk...

In past couple of years, there has been a strong demand for cut in the interest rates. The cacophony rises multifold closer to the scheduled meeting of the monetary policy committee (MPC) of RBI. Many experts have been persistently citing lower rates as panacea for accelerated economic growth. In past five years, since July 2015, RBI has halved its benchmark repo rate 8% to 4%. Despite this we have not seen any signs of acceleration in economic growth. The credit growth has remained low and is expected to plunge to zero by end of this year; as the supply of money (deposits) continue to outpace the demand (credit) A couple of months ago I had shared some random thoughts on the utility of lower interest rates in the current economic environment. I mentioned that "Interest rates are usually function of demand and supply of the money in the monetary system. Demand for money is again impacted by the level of economic activity and outlook in foreseeable future; whereas supply...

The elementary principle of economics is that the price of a thing that has any economic value is determined by the forces of demand and supply. Often in the short term a state of inequilibrium may exist leading to higher volatility in prices. However, the equilibrium is usually restored by operation of a variety of factors. There is no denial that economics is youngest amongst the scientific discipline and pure scientists hesitate in admitting it as a discipline of science. Nonetheless it is evolving fast and becoming popular. Not getting into this academic debate, what I have understood is that in popular economics theory is that: (a)    Price of currency is usually a function of demand and supply of that currency at any given point in time. Higher supply should normally lead to lower exchange value and vice versa . The demand of the currency is determined by the relative real rate of return (interest) and structure of economic activity (e.g., current acco...