Tuesday, November 11, 2008

Economist Ajay Shah is back on firing RBI Actions

How to control the Inflation Tiger? Ajay Shah gives many interesting suggestion. The below are the few which are really need of the hour. If fact, I would expect a 15-20 percent rupee appreciation. So that I can able bye things which I wanted to buy from foreign countries. Of course millions of people would buy things like that and this. 

  •  The way forward lies in breaking the rupee/dollar peg, as was done in early 2007, and having a 10% rupee appreciation. 
  • We are suffering from these problems because of the blunders of monetary policy. The possibility of such blunders needs to be eliminated by rewriting the RBI Act. The text of this Act is completely wrong in the light of the monetary economics that we know today. With a sound monetary policy framework, inflation would be stabilised, inflation crises like this would not periodically hijack the government, and distortionary short-sighted initiatives such as banning exports of certain goods would not arise.
  • The right combination of policy for the short term involves (a) an appreciation to Rs 36 per dollar with (b) a reduction in the short rate to 4%. 
  • A 10% rupee appreciation would yield a nice dent on inflation, as happened in March 2007. 
But finally I got the Adam Smith famous Book of “Wealth of Nations” from US through my friend. 

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