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Tuesday, June 2, 2015

Guv'nor Goldilocks

The RBI meet 2nd June 2015 introduced us to the 'goldilocks' policy.The Governor may have his compulsions but then so does the economy!

I understand that the RBI needs to hold itself to meet future challenges in terms of weak monsoon,fuel prices,low corporate earnings,rising NPAs.
What is disappointing is the contradiction in cutting rates yet the commentary warned of possible inflation ahead due to sub normal monsoon.Why not wait till July by when we would have known about the rains and then gone ahead and taken a decision for a bigger rate cut?

Is the pressure from the Government greater than thought?

The issues of crude oil prices,monsoons etc have vexed the nation for centuries and it is nothing new,in fact with crude down by 50%,forex situation under control and even inflation at manageable proportions I would have expected a greater stance from the RBI Head to try and kickstart growth.

Is he a 'doom and gloom' guy?Is his paranoia with inflation hurting India and affecting policies that could reignite the economy.I remember in 2011 when India was growing at 8.5% and the rates were hiked,it led to a rapid shrinkage in liquidity and nothing the RBI done has brought down inflation.

Global factors have been mainly responsible.We all known the famous supply side issues in India that make inflation difficult to control.

Keeping all this in mind I would have expected a 50 bps cut in repo rates or some tinkering with the CRR and SLR which remain unchanged.

The Governor sticks to his conservatism and sees challenges looming over the horizon.But when are there no challenges.The situation is much better than the 1980-90 period.

He is not in his own words a 'cheerleader' for the markets.We do not want him to be.We just want him to use the elbow room he has to maneuver the economy to grow higher and moderate inflation.Not kill it...!