Sunday, January 31, 2010

RBI Monetary policy- a balancing act

The monetary policy 2010 announced by the RBI Governor Subbarao this week clearly is a balancing act. 2008 and 2009 were difficult years for global economy. However, India has handled it's cards well even during this recessionary period. The RBI has been a watchdog which prevented Banks getting muddled up with the mortgage and derivative problems. With less dependence on exports, India could weather the storm well. RBI has made an upward revision in it's GDP guidance for India from 6% to 7.5% for the year 2009-10. In the same vein, RBI has also revised its inflation target from 6.5% to 8.5%.

The rampant inflation is what has made RBI act by increasing the cash reserve ratio (CRR)
by 75 basis points from 5% to 5.75%. By keeping all the other policy rates like Bank rate, Repo and reverse Repo rates unchanged, the RBI has sent a clear message. This act of RBI will not increase the interest rates but will suck up Rs.36,000 crores ( Rs.360 billion) from the system. Hence sustenance of growth coupled with capping inflation has become the focus for the central Bank.

India is now moving from an era of managing growth to sustaining growth. This has to be handled effectively without letting inflation go out of control. Full marks to RBI for keeping this in mind in it's policy formulation document.

Indian economy will roll forward and the central bank will have a role to play.

Tuesday, January 19, 2010

Haiti hit by natural calamity

The earthquake that hit Haiti probably caused the worst natural calamity in history. Close to 100,000 deaths and more than three million people affected. The pictures and news coming out from Haiti shows the dastardly devastation . Coupled with the total breakdown of the administrative machinery, the relief operations have been severely impeded. World aid is pouring in and so is individual contributions. But it is going to take some time before any meaningful alternate solutions can be arranged for the affected people and families.

Haiti is one of the poorest nations in the western world and this heart breaking disaster would severely impair their development process. It would require a concerted effort from social organizations and world Governmental agencies to come to the help of Haiti over a longer period to sustain the momentum of development and growth.

Let us wake up to this cause and help our brethren so they may live a life with self respect and dignity