Depreciation is good...

Article;

http://economictimes.indiatimes.com/news/economy/indicators/rbi-has-little-room-for-immediate-rate-cuts-morgan-stanley/articleshow/16879596.cms

Comment;

I agree Rupee will depreciate and has negative effects. But with growth at 6% and inflation at 8% i think India is having normal times. Neither too good, nor too bad. Growth is good we need to push it further. India has a poor export sector and we need to give it a push. No doubt Indian currency is very weak but that is a good thing. And, a good thing even when compared to the gains from a strong currency. With a strong currency we buy products of a foreign country and employment is created in foreign. But cheap currency gives exports an impetus which creates employment at home and increase tax base (not always). A currency depreciation is always good. Even if Indian currency depreciates further it will help the economy in the long-run. The larger the gap between the strongest currency and weakest currency the more it will take to converge to its true- value, equilibrium exchange rate. And, the longer will be the advantage of the country “of being cheap” for currency or for products. Currency depreciations have pulled out economies out of recessions. And, developed countries welcome it...

Which Way the RBI Will Go?

Article; 

http://economictimes.indiatimes.com/news/economy/indicators/inflation-at-10-month-high-dampens-rate-cut-hopes/articleshow/16819566.cms 

Comment; 

Before the RBI the question is not just inflation… it is actually a trade-off between inflation and unemployment. If inflation is high the central bank chooses a lower level of employment by raising interest rate. On the other hand, if unemployment is high it chooses a higher level of inflation by lowering interest rate. To sum up, a central banks’ job is not just keeping check on inflation but to ensure full employment, as well. Just to note, full employment is established before 100% employment, at 95% employment or 5% frictional unemployment.

 Recently i read at many places that in 2012 unemployment rate fell to 3.8%. I wonder, with many, that how with a high interest rate, around 8%, and with everybody keeping their hands-off of investment unemployment rate fell to 3.8%? If it has and is true… it is a sign of overheating of the economy and, now, i do not wonder, anymore, why inflation is persistent. Anyways, at other places, i found unemployment rate for the year 2011 at 9.8%. On the basis of the 2011 data even if i guess that what could be the unemployment rate for year 2012, i can’t guess less than 8% because interest rates remain almost same with 50 basis point cut in repo rate by the RBI. This figure is 3% above than our frictional unemployment rate of 5%. In one situation, we can not lower the interest rate, in the other, we need to reduce unemployment rate by lowering interest rate, choosing a high inflation target. I’m confused which data the RBI will find true to choose its course…