The RBI does it again

The Reserve Bank of India has once again raised the interest rates. Yet another round of an increase in the lending rate for reasons not entirely attributable to money supply. 

The WSJ reports 

MUMBAI – India's central bank raised its key lending rate by 0.25 percentage point Tuesday, but hinted at an imminent end to its tightening cycle, saying it is unlikely to increase the rate again at its December meeting as inflation should be easing by then. 

"Notwithstanding current rates of inflation persisting till November, the likelihood of a rate action in the December mid-quarter review is relatively low," the Reserve Bank of India said in its mid-year monetary policy review after raising the repurchase rate to 8.50%. "Beyond that, if the inflation trajectory confirms to projections, further rate hikes may not be warranted." 

The RBI has raised rates 13 times in the past 19 months but has failed to take the sting out of inflation, which accelerated at 9.72% in September. A poll of 15 economists after the rate decision showed all of them now expect the RBI to hold steady until March. 

Based on the current economic scenario, Tuesday's rate move could be the last in the policy tightening cycle, RBI Deputy Governor Subir Gokarn said. 

The RBI's dovish comments come as growth in Asia's third-largest economy is showing clear signs of a slowdown, crimped by the aggressive monetary tightening and deepening economic troubles in advanced nations.

Still, the rate increase puts India at odds with the rest of Asia, where most central banks have stayed on hold during a period of renewed economic turbulence, while a few have even begun to ease policy.

This is supposedly the last round of increase. Well, it’s not surprising, considering that all macro-economic indicators are pointing towards a slow growth.

Food inflation has been the enemy of the year 2011. The government can do well by clearing the supply bottlenecks. The complete mismanagement of crops and their storage by the Government is brushed under the carpet. We now have a country where food shortage and food surplus go together. There are Indians who go hungry and there are Government storages where food is allowed to rot.

The Honorable Supreme Court of India directed the Government to give the grains for free to the poor. Our erudite and learned Prime Minister and his even more erudite and learned Agriculture and Food Minister objected to this suggestion by the Supreme Court.

The message to the Honorable Supreme Court by the Prime Minister was “Don’t try to run the Government” - a very assertive response from a Prime Minister who heads a Government with more scams than ever in India’s history.


Copyright - Nitesh Kotecha-