Interest Rate, Wages, Exchange Rate, GST, Oil and Fed...

During Manmohan Singh back in 2008 interest rates were cut from over 7% to just above 4% because of recession... Real wages and incomes must be saved form price rise of daily use things to increase demand which are best represented by CPI than core-CPI or manufactured items…

Most important, real wages must be protected to increase savings and consumption, without saving investment and growth is not possible... Oil prices too could not increase too much if we use right foreign exchange right foreign exchange rate policy just to offset effects of oil price changes...

Foreign debt has risk of exchange rate or depreciation in the currency... Borrowing in domestic currency may hedge against the risk of default... The US borrows in its own currency that is why loans are free of the risk since it can mint money and pay loans...

Containing inflation and increasing real wages and maintain competitiveness of business is important for demand and growth... Fostering the spirit if competitive Federalism could further help contain cost and increase productivity...

The government should try to bring the liquor, oil, electricity and real estate to the GST to increase its tax base which could not been done before due to the fiscal revenue deficit... they have a huge demand...

(What) the GST collection does to revenue would depend a lot on the above four... Lower inflation and higher real wages could increase demand... Some countries include major expense like tobacco and booze in their inflation index...

Economy would recover... People have only delayed spending, especially the investors and consumers that have lowered inflation and interest rate expectation... A good budget and monsoon could further boost investment... INDIA''s long-run fundamentals remain intact...

It is worth introspecting that the US-Iran tension is coinciding with the lower oil prices which has made it to bounce back; despite of production cuts prices have been low... Higher oil prices have had been the cause of higher inflation and interest rate and lower demand in the global economy...

Lower oil prices are good for demand and global economic growth, for oil exporting countries too...

Containing inflation and increasing real wages and maintain competitiveness of business is important for demand and growth... Fostering the spirit if competitive Federalism could further help contain cost and increase productivity...

Devolution of more funds to the States and their ability to decide their tax rates allow for higher states' spending...

If unemployment has not reduced prices, in the US, then a rate cut expectation might delay spending, but high real wages and income and expectations could increase spending if the Fed avoids the rate cut expectations, though not a rate cut...

US' ails are low demand and higher supply, the share of labour has been low than capital, that is responsible for lower prices than target, capitalist is supplying more at zero or neutral real interest rate, but lower interest rate expectations have delayed spending, though real wages have increased.....

Real Rates, Recap, MMT, GDP, Jobs and the Fed...

The RBI has lowered GDP expectations despite an accommodative policy which should be revised upwards to improve expectations... GDP expectations are used for investment decisions..


Raghuram Rajan promised a real interest rate of 1.25 - 0.50 in a world of negative real interest rates.......


In the latest Modern Monetary Theory money is not a problem ''coz the Central Bank can print currency if the money supply is increased through the right channels like monetary policy that increase productivity, even through fiscal policy, and reduce inflation...


The RBI might think of recapitalisation of PSBs through the new money or buy recap bonds from the stressed public banks... Banks failure should be tackled by the RBI ''coz it is responsible for bank regulation and risks... It would help increase investment, employment, supply, demand and growth and expectations and help contain prices or price-level... 


Periods of slowdown or low growth are accompanied by lower prices and periods of high growth by high prices... INDIA\'s low inflation shows that INDIA might be going through a slowdown, but there is no such thing as deflation and a broader slowdown...


Both, food and fuel inflation have higher weight -age in CPI which are low leading to lower inflation and interest rate expectations which may boost growth expectations... Lower growth support lower inflation and high growth high inflation... If the claim is that growth is slow, then we cannot conclude that inflation would be high or vice versa...


Economy would recover... People have only delayed spending, especially the investors and consumers that have lowered inflation and interest rate expectation... A good budget and monsoon could further boost investment... INDIA''s long-run fundamentals remain intact...


The government may use school and college scores for giving jobs and not screening tests so that students work hard all along not just dependent on passing one exam... We now have semester system which is justified on the same line on thought that student should study all the year and also to lower syllabus load...


INDIA is largely unorganised or informal due to lack of information or data to extrapolate estimates... There has been full transparency as far as changes in the methodology and base years are concerned... The World Bank has appreciated the methodology as latest...


Investors have delayed spending after the yield curve inversion and looming recessions and tariff and trade wars discussions in the expectations of lower real interest rates ahead, in the US... now, it could further delay spending with delay in rate cuts...


The Fed has already increased interest rate in the name of normalisation evenwhen inflation and expectations have been low and quite stable which has increased real interest rate... The Fed is aware that it needs higher prices and interest rate and expectations to justify normalisation... Lower inflation and interest rate expectations may have delayed spending...


Neutral means zero real interest rate and lower inflation and higher real interest rate mean low demand and growth which requires cut in the nominal interest rate to achieve neutral... 2.25 nominal rate and 1.6 inflation which means a real interest rate of 0.65, higher than zero or neutral which could mean higher saving and low or delayed spending...


A rate cut or a patient approach could end lower interest rate expectations and increase spending also through higher real wages... The Fed could also wait for real wages or Real Balance or Pigou-Effects to increase demand, but lower price expectations could delay spending...


Rate cuts could increase demand and spending and prices and expectations, but rate cut expectations would delay recovery from lower prices and expectations and could also possibly reinforce lower prices and expectations... The Fed should take stock of the situation and deliver a rate cut soon....

Agriculture and Skills, and, Stocks and Monetary Policy...

Skill development to diversify agriculture into other industries and services could help increase productivity or production and lower prices and increase real wages and incomes... 


Higher productivity and lower and stable prices would increase demand and supply, exports too, due to lower inflation cost and prices, on a much larger scale means higher economies of scale and profits, including real wages and incomes...

Lower cost of agriculture is also important to double farm incomes… Less people in agriculture would increase share per person which could mean higher product... Govt may help bring private skill training institutions at low cost... Paid by the trainee... but, sure jobs according to industry demand...

There are not enough jobs for graduates except in few big centers ... there is oversupply of engineers and doctors ... the others have less scope for direct jobs, simple graduates... unless they opt for a low skilled and wage job which is a loss of product... and demand and growth...

People should buy low and sell high, the market points that large cap may see correction because they have done good during the past one year and people should book profits, but down beaten small and midcap might see revival in earnings...

A big correction due to domestic factors is improbable and FII could flow in due to uncertainty of trade war outcomes and oil prices are unlikely to go 90 anytime soon which should help contain CAD and inflation....


Fixed deposits pay nothing compared to other asset class... money should be invested not saved in passive funds which are generally robbed by inflation...

There should be some rule of thumbs to invest in the stock market like never sell in a falling market, but buying more and never buy an overpriced stock, but use for booking profits, invest slowly for atleast a quarter... Buy stocks that are consistent in performance... During good times even average stocks do well....

The rally could continue because we do not have a broad based recovery... We have money waiting on the sidelines to increase investment spending after lower real interest rate expectations bottom out which could increase demand/supply/prices and growth and expectations....

The trend in the market is that the market increases 1000-1500 points and then a correction of 500- 1000 points, but could correct 1500-2000 points in case of bad news, then again could increase 3000 points, the market goes through short cycles of buy and selling...

The Sensex has increased 15 000 points since 2016... a staggering increase of 40% in 3 years even when we are recovering from a slowdown... In this scenario the Sensex is yet to see its best days in terms of expectations...

The interest rate cycle is still to bottom out to increase demand and price expectations... Lower interest rate could increase supply and reduce unemployment and increase production that could lower price expectations below full employment and also because of lower borrowing cost...

The NPAs hangover and, then, the NBFCs or shadow banks crisis demand recapitalization and liquidity assurance by the Govt and RBI... Moreover, interest rate cut transmission is also dependent on the same...

Otherwise demand and growth could take long to materialise or might delay... Fiscal assistance to banks for recapitalization may increase productivity of capital by lowering the borrowing cost and expansion in banks capacity to lend more...

The RBI may allow banks to float the Rupee denominated foreign bonds which could also help maintain stability in the exchange rate offering higher interest rate than Japan, US, Europe.. Interest rates in the developed countries are lower than INDIA...

Nonetheless, higher fiscal spending could become more probable when even lower real interest doesn’t increase the private investment to increase growth expectations, but that is a far outcome because INDIA is not demand deficient, but lower investment and supply are reasons for higher inflation and interest rate expectations which are also the reasons for lower supply...

The evidence we have from the developed countries that price level in these countries has gone down with lower interest rate and higher supply, we have examples of Japan, US, Europe and, now, China... 


These countries have used more money supply and inflation and depreciation in the past to increase exports that have reduced real wages and demand in the domestic economy and further increased supply lowering inflation and interest rate and expectations...

Germany which has used internal depreciation to increase competitiveness which has also helped increase real wages... 

Lower competition among banks for the market share could be responsible for the problem of interest rate cut transmission further crippled by NPAs of banks... INDIA, in this situation, needs FDI in banking to cover loss in bank credit due to above reasons...

With real rates at 3%, inflation at 2.9% and unemployment above the natural rate, the RBI may reduce interest rate more than standard cuts, change to accommodative stance and increase liquidity through CRR, SLR and reverse repo cuts and OMOs...

Since growth has suffered due to higher inflation expectations which has changed to a much benign level as far as demand and food and fuel prices are concerned... The days of oil at $ 100 are behind us...

Contrary to the popular belief that debt funds work during slowdown is only half the truth... We know a bond has both, a bond yield and a bond price... During higher prices or inflation and growth, yield increases, but bond prices go down and bond prices increase during slowdown and yield go down, during low prices and growth... Bonds are less volatile than equities... Many people do not understand bonds...