While the “bank rate” has been already used into Indian policy as the commercial benchmark for banks to lend and thus borrow, the policy rates set by the RBI in the ordinarily and now by policy fixed channel of 100 bp has definitely made Fixed Income more interesting with yields touching 9% soon whenever a rate hike of more than 25 bp or a WPI inflation move to double digits is confirmed even as a blip. Luckily, the ECB rate hike would already be done tonight and we have a week before talks on QE3 are more than an idle opinion at PIMCO.
As mentioned in the networks ( by Commodities experts, I suspect) the end of QE2 would soften the inflation blow for us and if it had come six months earlier, India may not have been tackling hot inflation either, which unlike in the case of China is not from overusing existing domestic production capacities and is more from supply inefficiencies and the skewed pricing vis a vis dollar we sustain for our exports. Also, before we forget challenges continue for our forex earners in other punitive action vis a vis knowledge workers and the expiry of the Doha round, even as a great performance on the fiscal deficit at 4.7% outruns our dismay in FY2012 for a likely 5.5% deficit an almost 20% jump without Telco licence revenues and lack of availability of cost cutting measures as we continue to under invest in Infrastructure as also Education Welfare and Healthcare.
My analysis however begs again that we find the space from the globally inspired inflation that has been unwillingly thrust on us and soon because we really never could afford a tight monetary policy for the Private sector or stop printing money for Welfare schemes. The catastrophe being in the RBI having to hike rates ( and they will raise it again) to bring inflation under control and keep growth moving forward when a drop to 7% growth does almost become standing still for us because of our size and diversity
- Happy Thursdays! Inflation by the week, doing it without the banks (awardz.wordpress.com)
- Survey Table: Analysts Forecast For BOE MPC Bank Rate (forexlive.com)
- Interest rates will rise quickly (telegraph.co.uk)
- Survey: Analysts Push Forecast For BOE Rate Hike Back To Q4 (forexlive.com)
- Bank of Canada: Rate hikes are coming (theglobeandmail.com)
- Moody’s to review big U.S. banks’ ratings (cbc.ca)
- The rate hike debate and rising volumes in trade (Bank Policy Tuesday) (awardz.wordpress.com)