Prices and Interest Rate and Expectations...

The Fed’s job is to curb too much volatility in the either direction and keep the borrowing cost stable to stabilize demand and supply and prices and growth and expectations... But, not in the stock market, however, stable costs would help stocks... 

Higher price expectations further increases price expectations and lower price expectations lower price expectations, because when people expect higher prices they demand more in present which increase prices... 

Similarly, when people expect lower prices they again delay demand and lower prices, however lower prices increase demand... In this situation Monetary policy could further increase volatility through the borrowing cost...

Nevertheless, higher prices lower demand... Borrowing cost (here) refers to the neutral real interest rate at which the economy is at full employment...

Moreover, higher price expectations delay supply which also increases demand and price and expectations and lower price expectations would further increase supply and lower demand and price and expectations... 

Nonetheless, higher prices lower demand and increase supply which lowers price expectations, but higher price expectations increase demand and lower supply again increasing price expectations... 

Sameway, lower prices increase demand and lower supply (relatively) and increase price and expectations, but lower price expectations delay demand and increase supply which again lowers price expectations... 

The goal of economic policies is the curb too much higher or lower prices or inflation... 

Given the population growth rate of INDIA it needs to create 6-8 million jobs to absorb workforce and not 20 million or 2 Crore jobs after deducting natural rate of unemployment or full employment...

Monetary Policy increases the supply of money therefore it reduces interest rate whereas Fiscal Policy increases the demand for money for spending therefore it increases interest rate and expectations... 

The bond market reactions are different on expansionary monetary policy and fiscal policy... Higher money supply by monetary policy reduces bond yields, but higher fiscal deficit increases bond yields...

Fiscal Policy increases demand for money in the economy through taxes and debt which directly increases the demand for money and interest rate... fiscal deficit or debt increases demand through wage spending which also increases inflation and interest rate and expectations...

True RBI missed the oppourtunity to lower interest rates to boost growth after demonetisation which reduced inflation and inflation expectations too much even with an accommodative stance...

The RBI has set the benchmark rate to the repo rate, to increase rate cut transmission, which would be in effect from April 1, 2019 which is likely to reduce borrowing or lending interest rate across the board likely to increase demand for loans, consumption and investment spending, and growth and expectations.

Moreover, RBI is expected to further cut interest rate or the Repo Rate and/or adjust capital requirements since liquidity deficit might not let rate cut transmission materialize… 

The RBI might educate people about the real rates which matters and not the nominal interest rate INDIA has one of the higher real interest rate and capital requirement countries.

50% of our arable land is dependent on weather for irrigation amid water disputes among states... It is major risk for farmers' income... 

If farm prices can not be increased due to resultant inflation, costs must be brought down... 

Moreover, if prices of manufactured goes down that could also increase real wages in the farming..

The US still gives subsidies to farming... Moreover, Israel has expertise in more crop per drop which might be engaged to improve farm performance...

DF, Real Interest Rate (Cut Transmission), Inflation, Crop Insurance, US and Oil... (Rev.)

Deficit financing (DF) to increase productivity may help... Finance should flow to sectors that may increase inflation expectations... Like oil and agriculture in INDIA...

Nonetheless, market may also be incentivized through lower interest rate by monetary policy...

Lower inflation and inflation expectations were very slowly recognized by the RBI which sent confusing signals to the investors or failed forward guidance about inflation and interest rate and expectations...

A higher real interest rate did not lest investment spending materialise... so low inflation is also a problem for supply, but good for real wages or incomes, nonetheless lower real interest could help increase productivity or supply to match demand levels...

The NPAs and higher inflation and interest rate and expectations the UPA left did not let investment and employment materialize in the economy later fully...

Increasing productivity means higher production and higher investment and employment and lower prices and increase in demand and supply and growth expectations...

The slowdown during the UPA did not let demand and supply recover completely...

Private investment did not pick up due to NPAs and the resulting NPAs of banks... that stretched too long...

Lower and stable prices were a miss during UPA...

Liquidity is also important for rate cut transmissions 'coz it would increase bank's scale of business, they would lend more and earn profits...

Moreover, number of banks mostly dominated by the public sector banks and less competition among banks to sell loans is also responsible for slow rate cut transmission...

Higher real interest rate compared to the peers has led to incompetitive businesses and exports...

Nonetheless, lower inflation is also responsible for higher real rates which needs to be corrected...

Both, liquidity and competition have restricted rate cut transmissions, too....

The most appropriate response to reduce uncertainty in farm incomes would be crop insurance due to lack of irrigation and credit facilities, like hedge investment for farms...

The share of agriculture in the GDP has gone down though number of dependents for jobs has had been very high which has reduced share per person...

The average income could be misleading since income of marginal farmers could be lower given their number...

Nonetheless, 3000 Rs/month is quite insignificant for a farm family to sustain spending on the basics including education...

A recession was expected (in US) in the backdrop of the inverted yield curve and too much tightening that are likely to cut the expansion cycle...

Nonetheless, if inflation and inflation expectations are contained through a stable or neutral real interest rate, expansion could continue longer...

During the next recession the Fed does not need to harbor too much lower interest rate expectations since it could delay spending to lower cost expectations...

If people do not expect lower interest rate too much they might increase investment soon…

Too much lower interest rate and price expectations might delay spending and recovery… 

The dollar never depreciated too much to attach a tag of currency manipulator to US... It has a huge demand, within China also, and due to peg to oil prices...

Any correction in dollar increases its demand and prices or makes and made it strong and depreciation in yuan, though...

The main difference in dollar and yuan is that dollar is world’s reserve currency and has a safe heaven image due to credible US monetary or economic policy...

Too much higher oil prices may point lower demand and supply and expectations... consumers would demand less and producers would supply less...

On the contrary, at lower oil prices consumers would increase demand and producers would supply to contain profits...

Nonetheless, higher prices lower demand or increase supply and lower price expectations... and lower prices increase demand or lower supply and increase price expectations...***

But, a stable price (movement in a narrow band) is the best to manage demand and supply and prices or quantity and price... 

***correction

Some abated risks...

Lower and stable oil prices, pause in the tightening cycle in the US and, now, lower interest rate and expectations in INDIA have the ability to affect the investment sentiment positively among domestic and foreign subjects amid few obstacles like expectations of slowdown in China and Europe and the Brexit…

However, this could be the right time to increase exposure to stocks and debt since they look more attractive after a healthy correction from value perspective after abated rate hike expectations in the US and other markets and measures to keep-off the trade war disruptions, but still in doldrums…

Nonetheless, economic policies are like waves that magnify its effects like rate hikes and rate cuts through prices by the central banks, for instance inflation tends to increase inflation and unemployment due to hike in the borrowing cost and expectations and deflation tends to increase deflation and unemployment because of lower borrowing cost and expectations…

Therefore, stable prices, movement in narrow bands, and interest rate and expectations like the natural or neutral rate theory around full employment could help stabilize prices and investment and growth and expectations.    

There is little basis to support no jobs claims in INDIA... at least there is no mass resentment... We have a vast unorganised sector without any data...

There is huge service sector in towns and villages and even in cities that earn daily wages and have no EPF demand where people are ready to work at cheap wages...

INDIA''s low productive jobs and wages and demand and higher prices are very big problems...

The best thing the govt could promise youth is education and skills and jobs and increase productivity of the economy according to industry demand managing demand and supply of jobs better...

INDIA''s huge workforce is its biggest asset and a liability, too... if the supply and demand of the CS’ and CAs are controlled to help income than why not for other skills...  It would also help the rural distress... which needs skills for employment...

Fiscal deficit has been a source of inflation and inflation expectations and higher interest rate and expectations and low investment, also due to depreciation and expectations...

Notwithstanding, spend on health, education and skills would increase productivity and competitiveness and demand and supply and growth and expectations...

Interim Budget 19...

The interim budget presented by the incumbent government has been one of highlighting the fiscal prudence committed during its tenure and showing restraint it has pegged the fiscal deficit at 3.4% higher by 10 basis points which got the markets’ thumbs up by 400 points surge in the Sensex, but lowered later probably on profit booking.

As was widely expected the rural distress got much attention for our FM who has allocated Rs 20, 000 Crore towards farm support.

However, the income support to poor farmers Rs 6000 per year per 2 hectares, is not very significant given the index of cost of living, only Rs 500 hundred monthly only, but asided Rs 75, 000 Crore.

Nonetheless, it has increased allocation to MGNREGA to Rs 60, 000 which are likely to boost rural demand suffering from lower farm prices and it has pledged Rs 19, 000 Crore for road connectivity which are likely to create more employment and demand in rural INDIA.

The government has taken cognizance of landless people in rural areas which are more vulnerable due to uncertain work and wages.

Moreover, the government has increased interest subventions for farmers under few conditions and for timely repayment for agricultural loans which are likely to benefit farmers.

Nonetheless, contrary to as was widely expected FM has not indulged in too much populist measures to woo rural population vote bank.

The government has proposed pension scheme for workers in the unorganized sector. 

The government has planned to build 1 lakh digital villages.

Nevertheless, the biggest announcement of the today’s budget is to exempt Rs 5 Lakh income from tax which is likely to benefit a large number of income tax payer’s population.

Once again, the government has refrained from being too much populist and has adhered to the path of fiscal prudence which is good for the industry.