Article;
May have done enough on rate hikes watching economy -Raghuram Rajan.
Comment;
Supply-side issues should entice our new Gov as the possible
answers to our economic woes since he is a “Supply-Side economist”. Rajan
should have helped the economy’s growth-rate by removing supply-side
bottlenecks for food and infra in his CEA avatar but he could not help much
under the government pressure because the government needed food-grain for its
Food-Security-Bill (populism)… In his new avatar he is supposed to increase
supply (G&S) by managing interest rate and money-supply, but, inflation has
made his task a little cumbersome… How
we can say that we are done with the interest-rates when the CPI is far high
than our target…? We need to increase
short-term rates at least 500 bps if the inflation is at 10 % [but actually it
is over (CPI)]... But, the Governor is hesitating to increase short-term rates
because the Industry wants rate-cut to produce and earn profits, but, we forget
that the hike in interest-rates is also increasing the capitalists’ income by
increasing interest rate on his savings if he is not investing... Actually, in
theory we assume all savings are identically invested, not completely true.
Therefore, a hike in interest- rates will benefit Industry is the same manner
it will affect others, higher return on savings, their income will increase… (i
think) it is the right time to make our interest-rate regime attractive (as
Rangarajan says)… I think he should not feel hesitation in increasing interest
rates. It will help all, in form of lower prices too…
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