Article;
US federal reserve must provide guidance on tapering stimulus.
Comment;
It is really important how we deal with tapering because it
has many consequences…no doubt we have managed to bring the CAD down but we
should not forget that we have unsuccessfully subdued demand of imports because
of smuggling; especially gold… the government levied an import-duty of 10% to
compress demand for gold that kept imports down… nevertheless exports too
showed improvement due to depreciation… So we have to weigh positives contrast
negatives... If we increase interest rates it will help the economy from many
sides… It will make the currency strong… others will demand a strong currency
foreign inflows would improve… due to interest rate differential, too… The real
effective exchange rate, adjusted for inflation is 58-60 which says the
currency is overvalued at 62-63. The monetary-policy too is showing an upward
trajectory given the inflation levels, especially CPI… And, if we go for a
depreciation exports will kick and would keep demand for imports in check due
to a weak currency good for CAD… But, if inflation had not the main problem we
would be able to push for more jobs… But we also have monetary policy in the
foreign exchange market, buying and selling of foreign exchange… Every country
which faces some unemployment tries to push growth through depreciation. In
other words inflation because loose monetary policy results in inflation and
depreciation too…But INDIA
is already suffering from high inflation…Outflows will bring prices down…
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