Tuesday, October 27, 2009

Inflation the Killer of masses desires but for The State has Thriller for it

Prof Vivek Moorthy says:

  • In India over the last decade, due to over-liberalization of the capital account, exchange rate management, or firefighting, has taken precedence over domestic monetary policy goals, and one would be hard pressed to decide where to slot the different policies the Reserve Bank of India has pursued.

Have a look of what Prof Ashima Goyal says:

  • In 1998-99 not tightening monetary policy when inflation peaked with food prices worked as inflation fell later.
  • It follows that excess liquidity is not the problem. Credit growth remains low at around 13%. Asset bubbles normally rise only if credit growth is excessive. And the instrument of procyclical prudential requirements is available to moderate them. If credit is going too much in any one direction concentration margins can be charged.

  • In China, credit is growing at 34%, financing not just government investment, but also private housing.
  • The RBI’s mild rate rises from 2004 did not reduce growth, but the steep rise in 2008 did.
  • If inflows surge as they did in 2007 more restraints may be required on the types of inflows susceptible to wider interest differentials. India’s intermediate stage of capital account convertibility gives it some degrees of freedom in managing, despite an unsatisfactory international financial architecture. Equity inflows do help Indian companies’ investment plans.
  • ……..inflation is low in most countries in the world. We should be able to import these low international prices. If we do not abort inflation now, there will be real appreciation anyway from higher domestic inflation.
  • Low world inflation did help bring down Indian inflation rates in the nineties.
  • In the third part draws your insights into the theory and practice.

No comments:

Post a Comment