Uncertainty or risk and price or inflation
expectations play important roles in the determination of interest rate, wages
and exchange rate, both the short and the longrun and lower prices mean higher
real interest rate or return on capital, more savings and investment, higher
real wages, more consumption and demand, and higher real domestic exchange rate
and exports, lower prices mean strong currency and more imports and foreign
country inflows…Higher price level or inflation would do the opposite…
Today the RBI cut repo rate by 35 bps and also the
reverse repo rate, but revised the growth forecasts downward, nonetheless the
central bank should revise growth expectations upward due to lower borrowing
cost and improved demand and supply... If RBI says the same it means demand is
expected to remain low and people would invest less...
The RBI may cut real interest rate below the neutral
interest rate of 1.5% to address slowdown... Moreover, it shall use its foreign
exchange reserves to capitalise PSBs which is likely to lower oil prices and
imported inflation...
The Govt may also borrow abroad to capitalise
banks... All these could increase productivity of capital by lowering the
borrowing cost and increase competitiveness invigorating virtuous cycle of
investment... Nonetheless, strong rupee would attract capital inflows...
The Govt could also reduce limit of FDI in PSBs to
capitalise them and increase interest rate cuts transmission... Lower borrowing
cost means that cost of land and labour would also go down in the economy which
could increase demand...
If Rajan had also promoted considering full
employment besides just price stability and inflation targeting for more
informed monetary policy settings it had made monetary policy more
predictable for investment decisions... Higher unemployment means that
production could be increased and lower prices by adopting a accommodative
stance and vice-versa...
The objective of the monetary policy is to achieve
the non-accelerating inflation rate of unemployment, by maintaining neutral
or zero real interest rate and nominal interest rate equal to inflation
to balance savings and investment and demand and supply and prices and growth
at full employment and potential... Rajan in his tenure has rarely spoken of
full-employment objective of the monetary policy....
The stock market investors are crazy people...
They sell in a falling market and buy when prices are high which is called
exuberance that increases risk for everyone when they should exactly do the
opposite...
Buy when prices are low and sell when they are
high... Investors should bid same lowest price for buy, lowest price could
fall each day depending on offers to sell, and offer at same high price to
sell, high price also increases each day depending on how much people are
buying the stock...
Price of the stocks move on excess bid and excess
offers. Excess bid would move price up and excess offers would drive prices
down... If everybody follows same lowest bid price to buy and highest offer
price to sell stock prices would be predictable and money would be safe...
Otherthings remaining constant, more bids would
increase prices and more offers would lower prices... But, if everybody sets
same bid and offer prices reasonably markets would be stable... bid
and offer prices are not the same... There is a buying price and then there
is a selling price... bid price is lower than the offer price...
The LTCG has the roots of the corrections since
the start of 2018, investors are more conscious of saving 10% in LTCG...
Moreover 1 year time is not the longrun (over 5years) ... 1 year is the
shortrun... 2-4 years are the medium term... The Govt should extend LTCG to 5
years... Moreover, tax on buy back has further deteriorated the situation...
it is a tool to share profits with the shareholders...
The Central Banks and the Govt may cater the
public expectations, but definitely avoid exuberance...
The Govt has revoked Art 370 on 6th
Aug., 2019 which seems quite reasonable. If Kashmiris are not abstained from
acquiring properties in other states why stop people of others states
acquiring property in J&K... J&K people must also support removal of
Art 370 and ensure security to others to get property rights in other
states... Moreover, the Govt must use plebiscite in POK to claim that it is
also a part of INDIA...
Next one would be to make Kashmir safer and promote
as tourist destination... Deploying more troops is a step in the right
direction...
On July 31, 2019, the Fed (US) cut interest rate by 25bps and promised for halting it balance sheet reduction programme, a step in
the right direction, it would keep the longrun and shortrun borrowings cost
low or lower due to higher commercial bank reserves... It is a big and good
news for the stock market...
Tradewars cause currency depreciation directly and
also due to retaliatory tariffs, when US imposes tariff on China, China too
imposes tariff on US' products which reduces demand for US' products and
dollar and since it’s a safe haven currency people increase its demand and
prices...
But, US' tariff on Chinese exports again reduces
dollar demand and prices, because of settlement of China exports in dollars
and yuan too... Since people prefer dollar for investment they bid its prices
higher, but not with yuan... Higher tariff on China products increase their
prices and reduce demand and price expectations, yuan too...
|
No comments:
Post a Comment