In the past few days or rather weeks almost everything has gone wrong for the Indian economy . GDP growth rate touching lowest levels in last 10 years , rupee touching all time lows almost every day , high CAD etc.
Amidst all this gloom Raghuram Rajan was made the new RBI governor .An IIT DELHI + IIM A +MIT(Ph.D) pass out, the best pedigree one can ask for a RBI Governor. The market gave a thumbs up to the decision of making him the governor as he is seen as one who is more growth oriented (his predecessor D Subbarao was seen as anti growth Governor though not entirely true).
One of the first thing Mr. Rajan did was to postpone the date of mid-quarter policy review after the announcement of FOMC meeting , which was quite pragmatic as a very important decision was to be taken by federal reserve about Quantative Easing(QE) tapering. From the moment Ben Bernake said that Fed would start QE tapering sooner than expected ,all the emerging economies' currencies went for a tailspin with Indian and Brazil among the worst performers . Due to all this there was huge expectation from Mr. Rajan, though during his maiden interaction with the press, he had made it clear that he wields no magic wand to solve all the economic problems of the country. Then came his maiden policy decision . He gave a rude shock to the market by increasing the repo rate, though other decisions of scaling back the emergency measures taken to control the fluctuation in the currency markets were on expected lines.
But the question remains that has anything changed at RBI? Decision making at RBI is still not based on data science . There is absolutely no reason to explain the increase in the repo rate . How can repo rate affect retail inflation? The rise in inflation is mainly on account of increase in prices of vegetable and fuel. These prices can only be controlled by removing the supply bottlenecks and constraints and not by increasing the repo rate. An increase in repo rate at a time when GDP growth rate is at its lowest will further dampen the mood of the investor. Although other decisions will positively impact the cost of borrowing funds of the banks but what is more important is to give correct signal to the market . An increase in repo rate is not one of them.
The most recent policy announcements suggest that nothing has changed at RBI . It still considers Inflation targeting as its main aim and not growth. Mr. Chidambram once said that he is walking alone on the path to put India back on growth path . It seems he is still walking alone even after making Mr Rajan the RBI Governor.
Amidst all this gloom Raghuram Rajan was made the new RBI governor .An IIT DELHI + IIM A +MIT(Ph.D) pass out, the best pedigree one can ask for a RBI Governor. The market gave a thumbs up to the decision of making him the governor as he is seen as one who is more growth oriented (his predecessor D Subbarao was seen as anti growth Governor though not entirely true).
One of the first thing Mr. Rajan did was to postpone the date of mid-quarter policy review after the announcement of FOMC meeting , which was quite pragmatic as a very important decision was to be taken by federal reserve about Quantative Easing(QE) tapering. From the moment Ben Bernake said that Fed would start QE tapering sooner than expected ,all the emerging economies' currencies went for a tailspin with Indian and Brazil among the worst performers . Due to all this there was huge expectation from Mr. Rajan, though during his maiden interaction with the press, he had made it clear that he wields no magic wand to solve all the economic problems of the country. Then came his maiden policy decision . He gave a rude shock to the market by increasing the repo rate, though other decisions of scaling back the emergency measures taken to control the fluctuation in the currency markets were on expected lines.
But the question remains that has anything changed at RBI? Decision making at RBI is still not based on data science . There is absolutely no reason to explain the increase in the repo rate . How can repo rate affect retail inflation? The rise in inflation is mainly on account of increase in prices of vegetable and fuel. These prices can only be controlled by removing the supply bottlenecks and constraints and not by increasing the repo rate. An increase in repo rate at a time when GDP growth rate is at its lowest will further dampen the mood of the investor. Although other decisions will positively impact the cost of borrowing funds of the banks but what is more important is to give correct signal to the market . An increase in repo rate is not one of them.
The most recent policy announcements suggest that nothing has changed at RBI . It still considers Inflation targeting as its main aim and not growth. Mr. Chidambram once said that he is walking alone on the path to put India back on growth path . It seems he is still walking alone even after making Mr Rajan the RBI Governor.
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