Article;
Unemployment levels rising in INDIA ILO report.
Comment;
Unemployment rate at 3.6% or 3.7% or 3.8% is lower than the
natural rate or NAIRU (non-accelerating-inflation-rate-of-unemployment, 4-6%)
in which inflation becomes low and stable. If it is below the natural rate it is a sign of overheating, the RBI should hike key interest rates to
control demand and inflation… Moreover inflation (CPI) too is above the RBI’s
comfort zone but after two rate hikes the RBI is expecting inflation to come
down close to target (4% with a band of 200 basis points). The RBI’s monetary
policy is scheduled on Jan 28, 2014 in which economists expect it to maintain
status quo and wait for more data… But with unemployment rate low below the
natural rate we can not expect prices to go down too much because demand is
still there… the market is experiencing scarcity of labor and to attract labor
it is offering higher wages which has further put pressure on prices in the
face of supply-side problems… The RBI should affect the proper threshold of
interest rate to sacrifice some demand for labor, too, which only higher
interest, apart from fiscal policy and taxes, can do to control prices… We can
easily expect more rate hikes in the following RBI reviews… This can be said
even after taking into account the Urjit Patel Committee report, which has
recommend the RBI to follow the CPI as anchor for inflation. The RBI should take
both, the unemployment rate and inflation rate, into account to decide the course of
monetary policy… Unemployment rate is a sign of overheating…
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