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Wednesday, April 14, 2010

Questions for monetary policy

The recent rupee appreciation, followed by rumours of RBI intervention, has set off fears that we're in for a repeat of the sad episode of monetary policy 2006/2007 all over again.

Writing in the Business Standard, Shankar Acharya repeats the advice that he gave RBI in 2006 and 2007. But new perspectives are now visible: see a striking piece by Ravi Jagannathan in DNA, and Pratap Bhanu Mehta in the Indian Express.

Ila Patnaik, in the Indian Express, emphasises that monetary tightening and exchange rate appreciation go together.


  1. I tried to do some brain storming, pardon me if i am wrong on any opinion.

    Appreciation of rupee will make imports cheaper and exports costlier. India's balance of payments stands at roughly $80B net Imports. as global economy is on the path of recovery, we should try to gain from that,and appreciation of rupee could hurt export.But it WON'T, because India's mainly imports are based on crude oil , fertilizer , etc.. it will be cheaper if rupee appreciated.Thus, we can ease the inflation and it will balance the exporter for somewhat.

    Conclusion : Appreciation of rupee will ease the inflation and it won't hurt exporters as well.

  2. I've always found interesting the whole vocabulary around currency "manipulation," or "nannying" as Jagannathan puts it. Somehow, controling the internal price of money is deemed to be "monetary sovereignty," whereas the external price of money is something that forex markets should "naturally" set.

    The trilemma makes clear the structural equivocation of the two prices: in the face of an open capital account, you have to pick one price of money or the other. India's controls allow us to have a bit of both, enabling a multi-polar strategy for a many-headed polity.

    The real gripe the neoliberals have is that the socialization of currency risk makes their little currency futures market quite redundant. Quantitative control from the need to sterilize likewise hampers the development of their sacred BCD-cow.

    The fact that India has been such a growth success in the absence of these developments suggests it is the neoliberal ideology itself that is rather redundant. But then again, if the current global crisis won't quiet them down, very little is likely to. It's just as well that the closest they are ever likely to get to power is the op-ed pages, where they are clearly over-represented.

    The Indian marketplace for ideas seems to be prone to long cycles of moribund monopolies.

  3. Dear Anonymous,

    please respond to arguments with facts rather than an angst against some group of people.

    you have a cogent rebuttal to the arguments put them down.

  4. Why shouldn't the Taylor rule be appointed as monetary policy and the currency left as a free float and the RBI then can be gotten rid of or left around as a regulator of some sort.

  5. Growth, inflation, and currency pegs are competing forces which cannot all be controlled. However, managing all three can mitigate the volatility in any one.


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