MSF and, demand and speculation...

Last time when Rajan reduced the MSF...

I said…

“The repo-rate hike was expected but the MSF reduction undermines the RBI's credibility against inflation... MSF will affect short-term demand and given the volatility in retail prices which are mainly short-term prices (perishables), we need to control demand... We (in Economics) assume that inflation is a short-term phenomenon; in the long-run we assume zero-inflation. Therefore we need to target inflation in the short term using short term measures like MSF... I think the Governor should have used MSF to restrict short-term liquidity to control demand in the short-run... (Probably) the RBI is using wrong levers to tame demand. If inflation exists in the short-run we also need to use short-term measures like MSF...”

This time i add...

"MSF is used when you have acute cash tightness/emergency/urgent... which has a bearing with demand through liquidity… Last time when the RBI raised MSF it said they want to curb speculation, then why not speculation on commodities...? I think we should keep the MSF tight for speculation of all kinds..."