Governor might suprise us...

Everybody is trying to take clue of what our RBI governor might do in its monetary-policy-review tomorrow. It makes sense that since we do not have latest inflation figure and the data reference is still old Rajan must wait for more data. But, the governor last two times surprised all with off-date rate cuts and there is a little chance this time too he might leave all in awe. Rajan has a tendency for surprising his observers, but no doubt he can maintain a status-quo and wait for latest data. The central-banks job is not so much about manipulating interest-rates directly, it is about managing money-supply and the interest-rate adjusts accordingly. Long-term rates guide short-run changes in interest-rates on retail-loans. The repo-rate too changes money-supply to commercial banks and is not the sole determinant of interest-rates... In short, it is the money-supply which affects interest-rates in an economy and if there an increase in money-supply interest-rates will fall... Keeping this mechanism in focus the central-bank may reduce reserves requirements and liquidity-ratios to increase money-supply and reduce interest-rates on credit... But, the transmission of money-supply to low interest- rate takes six months or more to translate in to higher investment therefore we can expect growth to pick only after the lag... As far as inflation is concerned it is expected to remain low on account of low global commodity prices. This time again Rajan might surprise us with repo-cut...