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..."
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