Tuesday, August 12, 2008

Inflation Control No Bar To Growth - Aug 12 , 2008

I frankly cannot figure out the frenzied excitement of the commentariat (the new buzz word denoting the entire community of commentators) every time the Reserve Bank of India Governor, Dr Y V Reddy, periodically busies himself with the limited repertoire of rates repo, cash reserve ratio, statutory liquidity ratio at his disposal.For instance, a Wharton College paper says, for a banker who is supposed to make his moves sedately and soberly, Reddy has always surprised the market. Whether it is the size of hikes or their timing, the RBI Governor has habitually done the unexpected.

This is a bit of overplaying for effect. Dr Reddy has always had a penchant for doing the expected and has never sprung a surprise. In fact, even in the second half of 2006-07 itself, he raised the main lending rate five times and increased the CRR three times to drain liquidity from the system.There are confident assertions by observers of another hike before the year ends.

A research report by Merrill Lynch, prepared after the most recent hikes loftily proclaims: Actually, to me, the RBI looks like a maestro who has a piano with only three keys to play upon, and who, for all it is worth, keeps pounding them, producing only loud clanging noises and no music.Ever since the rate of inflation started climbing in February, Dr Reddy has been notching up those rates by assorted slabs of basis points (the glamorous present-day coinage looking numerically more impressive than old time percentage equivalents) to halt the march of inflation.

For all the convoluted explanations accompanying every such grand performance to full audiences in the cavernous hall of the soaring RBI building in Mumbai, inflation is proving to be unstoppable and has now crossed the dreaded double digit and threatens to move further North.

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