tag:blogger.com,1999:blog-19649274.post6867819389789842503..comments2024-03-27T17:16:12.789+05:30Comments on The Leap Blog: Reining in the inflationary dragonAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-19649274.post-35302730773516411382011-10-18T18:57:06.234+05:302011-10-18T18:57:06.234+05:30Dear Ajay,
Why the focus on consumer prices? What...Dear Ajay,<br /><br />Why the focus on consumer prices? What about asset prices which have a direct impact on the economy. With losses in the stock and bond markets and an induced recession the impact is clearly observable in the data currently rolling out. <br />Is it not the responsibility of the RBI to address both issues?<br />Other tools are required and a focus on interest rates is not sufficient to address the issues.<br />What say you?avinashhttps://www.blogger.com/profile/10170300887562824156noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-63951616724691498442011-10-18T02:05:32.105+05:302011-10-18T02:05:32.105+05:30I'm not convinced, especially with the argumen...I'm not convinced, especially with the argument on non-tradeables. Yes, interest rate can be used to influence consumption to an extent, but that is why there is a measure called elasticity of demand. Food/vegetable price inflation has been severe since 2006 (the time frame over RBI policy is being criticized) and demand for basic foods is pretty inelastic. So I don't think the supply-side constraints argument is closed. Ideally, I'd like to see a plot of real per capita income growth Vs time(for say the last decade), and I'd like to see that further split into real per capita income growth across the lower, middle, and upper income brackets(since lower class income growth would spur a greater demand for basic foods). Then one should show agricultural output Vs time. Then we can conclude based on the relationships in those data whether there is or isn't supply side constraints. <br /><br />As for tradeables, see this for more: http://articles.economictimes.indiatimes.com/2011-10-15/news/30283521_1_price-rise-export-prices-yuan<br />The above may not tell the whole story. But its a factor to consider. Arbitrarily raising interest rates will absolutely kill investment without necessarily hitting at the root cause for the inflation. <br /><br /><br /><br /><br />I will post this as a comment may be. I'm sure he knows more than I do, so I'd like to see how he addresses these questions.skarhttps://www.blogger.com/profile/01438206586553429725noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-3534493441153575102011-10-16T15:03:21.430+05:302011-10-16T15:03:21.430+05:30It's not just by writing good speeches. It'...It's not just by writing good speeches. It's by behaviour which abides by the good speeches.<br /><br />The motto of a good central bank is: "Say what you will do, and do what you just said'.<br /><br />The scarce currency is that of credibility. Over the years, RBI needs to build up credibility. At present, with five years of failure on inflation, this is sorely lacking.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-88219292611601691632011-10-16T00:30:18.736+05:302011-10-16T00:30:18.736+05:30i dont get the expectations theory at all.do these...i dont get the expectations theory at all.do these guys at the RBI have so much power outside of the printing press they wield?.<br />really? just by writing speeches which ajay shah would approve,inflation would go down?. i mean,forget RBI,why dont influential people on TV have a better chance to reign in inflation then? just get rakhi sawant or shahrukh khan to reduce inflation.which businessmen or entrepreneur pays attention to RBI speeches? which housewife?<br />dont the huge increase in monetary base in the western world have any bearing on us? especially given that rupee is not convertible? we are importing inflation .that is the west's gift to the rest of us.Dsylexichttps://www.blogger.com/profile/03882859273018168075noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-19230764856829213882011-10-15T21:22:17.045+05:302011-10-15T21:22:17.045+05:30I am a consumer of any noise coming out of RBI as ...I am a consumer of any noise coming out of RBI as a demand from my profession. But the business media (both MSM & social) seem to have missed the biggest slip in recent times: substantial devolvement of G-Secs in the auction concluded on 14-Oct-2011: INR 4000 Cr of devolvement in two of the most active securities (~45% of the issue size). <br /><br />Here we have a situation where the Government is refusing to disinvest its PSU holdings on the back of poor valuation, unable to meet its revenue targets, exceeding its expense budget, overshooting the borrowing plan and saying "not any rate can be accepted as cut-off". RBI has been preaching about the market determined rates (wrt INR depreciation) but where is the same diktat when it puts a upper cap on yields (or so it tries) at which Government borrows. I cannot fathom a situation where the borrower whose debt-equity is rising by the day, wants to borrow more but refuses to pay more for the incremental debt. For reining in inflation and anchoring expectations, the demand side needs to be taken care of. With Government being the biggest (and the most reckless) spender, if the borrowing rate does not go up simultaneously, in my understanding, the seriousness and veracity of RBI's handling of inflation control seems thoroughly out of place.Anonymoushttps://www.blogger.com/profile/03411208765315272383noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-1891341452598733632011-10-15T20:51:28.365+05:302011-10-15T20:51:28.365+05:30Dear Ajay,
Pardon my limited understanding of the...Dear Ajay,<br /><br />Pardon my limited understanding of the subject, but your last para seems to suggest that RBI can talk the inflation down.<br /><br />Surely, apart from monetary policy, fiscal policy initiatives are very important too. Even if it means unpopular measures and more pain.<br /><br />Naresh Tejwaninaresh tejwanihttps://www.blogger.com/profile/00628331712501771130noreply@blogger.com