Friday, March 6, 2020

Inflation, Transmission (of Rate Cuts), Black Money, Foreign Exchange Reserves, Corona Virus and CAA/NRC/NPR...



Using a deflator of 4% for 18 and 4% for 19 the real GDP growth rate of INDIA is 6.6% in 19 over the last year, inflation has spiked only recently due to seasonal/cyclical factors, due to budget too... People put hold on investment due to lower interest rate expectations, but inflation has cut on the real interest rate and dashed hope for a rates cuts soon... Nonetheless, the corona virus has renewed hopes for rate cut… Higher inflation expectations from low base due to increased demand and price expectations if supply doesn't increase, would also restrict investment in future due to low supply and higher prices and interest rate... Businesses are holding recovery back by not investing and further increasing prices and interest rate and expectations...


If transmissions of reporate cuts do not happen, the RBI may cut real rates considerably lower or to zero, afterall it is the market rates that give positive returns and matter... Lower real repo rates could help transmission to the market rates... Core-inflation excludes volatile food and fuel prices when INDIA has limited capacity to nudge supply to contain prices and demand and interest rates... is close to 4%... Therefore, there are no broader inflation expectations and are largely contained... Oil and food depend upon seasonal and external factors, too, and create uncertainty for growth... But, too much lower interest rate expectations could delay spending as people would hold for bottom or lowest borrowing cost... and when everybody would increase demand and spending it increases prices and expectations....


If Modi could bring all the black money to the banks by offering zero or lower interest rates for 5 yrs or by making digital payment above Rs 2000 compulsory that would be a great service to the Economy... it could help formalisation of the Economy, too... Tax Revenue could increase; it would help increase deposits and lower borrowing rates for business and employment....


Nominal GDP is growing consistently since last few years... Even GDP at constant prices shows consistent improvement over years same site...


The Govt has $ 500 billion in the foreign exchange reserves with the RBI which is lying idle/passive... INDIA's CAD is around $ 70 bllion and the reserve is enough for 6 months imports... The reserve could also help increase investment in skills and productive areas... $ 500 billion is 35 lkn crore rupees... More supply of dollar could lower it and make the rupee strong and oil cheap which could also increase competitiveness of the Economy... The Gov and RBI should try to bring rupee denominated bonds get indexed in foreign indices...


The RBI must make crop insurance and hedge investment necessary for loans... That would make the investments safe....


Export ban on medical products may lower prices (and expectations) of medical equipment in INDIA which would need more investment in the Industry to lower average cost... to contain revenue.... which may also increase prices and expectations in China... Lower price expectations could delay investment in the stock or inventories... Lower borrowing cost could help increase investment and increase supply, further, lower prices (and expectations)... Ban is also not diplomatically ethical... Demand for foreign exchange could go up too.... It’s a bad move...


Expectations of Stimuli due to the coronavirus... Lower cost of doing Business...  may put … Hold on Investment... If Industry lowers consumer prices it would lower the borrowing cost, demand for real wages would be contained down due to higher supply and lower inflation and higher real interest rate and savings/investment and the domestic real exchange rate and exports ie internal devaluation like Germany which is second country with CAS (Surplus)... and higher growth...


The US economy has shown price pressure especially the core-inflation... Lower imports could increase inflation expectations and spending by domestic investors when prices and interest rates are cheap... Lower prices could increase the US competitiveness... and demand and growth... it would also increase savings and investment... other things remaining constant....


Because they (Muslims) have majority in the neighboring terrorist countries, which oppress minorities and are a threat for security, they cannot be provided free entry... Their rights would be better protected in the majority countries, though; they are minority in INDIA and are treated on par with other citizens... INDIA is more liberal than other countries, but not to be confused with weakness...


Let us see which party could end hooliganism and vandalism against a law to identify its own citizens... for their good... opposing Citizenship Law is anti-poor....

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