Complete price stability is a myth, the economy moves between high and lows based on the demand and supply or between high and low demand and high and low supply... Low prices and full employment mean there would be higher demand and price expectations and higher prices and full employment mean there would be higher supply and lower price expectations...
Unemployment and lower demand/high supply and lower prices mean slowdown and unemployment and high demand /low supply and higher prices mean high growth... The economy moves between high prices and high growth and low prices and low growth...
Base effect ie lower prices and growth means there would be higher demand and price and growth expectations and the same with debase effect ie there would be a correction or lower demand and prices and growth expectations... which seem rational expectations... The economy moves between high demand and high supply and between higher spending and lower spending...
Lower prices mean there would be more spending and higher prices mean less spending... Both consumption and investment decisions depend upon price and price expectations... Lower prices mean there would be more spending and higher prices mean there would be less spending ahead even if there is full employment and fixed income...
Intervention could reinforce volatility, for example, lower borrowing cost could reinforce lower prices and higher borrowing cost higher prices... Therefore, we need stability in the borrowing cost...
Inflation would increase after full employment...Unemployment and lower borrowing cost would mean that there is space for expansion means higher demand and supply... When both would increase equally prices may remain stable, though if demand is higher prices may increase, but not that much and in supply case prices may go down, the market move between excess demand and supply...
The govt may educate the masses how to take advantage of price expectations and corrections in the G&S/inventories market... If they expect 1-2% profit/day they may increase investment demand as this could double investment in 100 days, for this they must wait for price corrections and increase supply when prices increase...
The govt and RBI must instill business acumen in the public and how to handle inflation and make profits... The RBI has allowed 2-6% inflation which could help grow money returns if investment is made wisely, at corrections...
Like the stock market, the broader economy and the inventories market could also be made profitable where prices could move from 2% to 6% and from 6% to 2% it could be a buying oppourtunity and increase supply when the price increases... If people buy when prices are low and sell when prices are high it would also help stabilise the economy...
Disinvestment is often regarded as selling family silver, though the meaning in current perspective is to raise capital in the market for more investment... Today only a part of the promoters’ stake or shares are sold to the investors... Disinvestment in today’s context is a lot different than used to be in the past... It means more money would be raised through sale of the companies’ shares for investment...
This time there is a change in the commentary that Das has expressed concerns of inflation expectations instead of lower inflation due to low demand... Inflation expectations mean that he sees revival in demand and growth which could further increase demand and spending... The central bank has projected a growth rate of 10.5% in 2021-22...
Fixed interest rate income assets does not benefit from volatility... For this investment in the short run gov secs is rewarding since they capture the loss in real interest rate due to inflation when the central banks increase the nominal interest rate to control inflation and restore the value of money, in the short run... Instead of bank deposits savers may park their money in g-secs and benefit from volatility...
It is quite a coincidence that INDIA's foreign exchange also stands $500 billion which is a major reserve with the central bank lying unused and idle... if invested in the economy could prove to be a major source of investment and higher productivity and demand and growth... If sold in the market vis-a-vis Rupee could make it strong which could attract inflows... Investment reinforces Investment ie multiplier...
The ratings are used to mobilise savings and investments on a very large basis which include FIIs, FPIs, both, debt and stocks, every country now want more foreign exchange for maintaining a stable exchange rate regime... Rating Agencies are at investors’ service...
But, the 2008 Crisis exposed the vulnerability of the investment banks even after good ratings... INDIA has been the fastest growing major economy with stable inflation, notwithstanding its rating has been the lowest investment grade...
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