The RBI infuses liquidity but they say CAD is a concern.
The economy is in
expansion mode... Interest rates are coming down and the central bank infusing
liquidity through open-market-operation (OMO) and cash reserve ratio (CRR). We
are going see an uptick in demand and prices, especially stocks, in the next
six-months. I think we have accepted inflation as sticky especially CPI. It is
still near around 10% (CPI). Moreover CAD is deteriorating but it opens room
for exports. I do not think we need to worry too much about imports because
rising prices will itself put break on demand if demand and prices rise too
much. Why the government and the central bank is worried about worsening trade
and current account deficit, they are not paying for it. They are only
concerned about the foreign exchange which they actually do not have. They
should concentrate on exports and foreign exchange. I think high interest rates
are hampering growth of exports. The central bank should give a boost to the
export sector in form of lower interest rates and the government should reduce
export-tariffs. The government has a huge stock of food-grains therefore it
should sell it and earn foreign exchange. This is a short-run approach to our
problems in the long-run everything becomes constant…
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