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It is strange that, the RBI is looking at the past data to take a decision on the monetary easing (rate cut), while they should have done just the opposite, i.e. take the note of the current figures they get from sundry agencies and then asses how much damage the high interest is doing or can do, in the next 6 months. When the inflation is moderating, what is the problem of the RBI to go in for the rate cut??!! When world over there are talks of monetary easing, we are clinging on to high interest rate regime. Really Horrible bunch of clowns!! I see pink dailies and various research heads talk of reforms and reforms, as if this is the new lingo of the capital market to make the sleeping bull rise!! But what is necessary at this point of time is to reduce subsidies, so that FD comes down, go in for rationalization of the taxes, give incentives to industry, bring confidence among the foreign investors, stop bringing such ridiculous laws which could have retrospective effect, remove barriers for FDI in various sectors, etc. If you call these measures as reform, then do it please or else please try to make this government walk.
FALL IN EURO IS GOOD FOR SPAIN: In Europe, a possible breakup of the eurozone is now openly discussed by policy officials and financial executives. The interest rate on Spanish government debt has soared above 7%, reflecting its lack of progress in reducing its fiscal deficit and those of Valencia and other regional governments. Greece is likely to fail its inspection by the “troika”, bringing it closer to a eurozone exit by the autumn. Even Germany is under financial pressure because the Bundesbank has so much explicit and potential exposure to peripheral European countries. The euro has fallen in the past year by 15 per cent relative to the US dollar (from $1.44 to less than $1.21). If it falls an additional 15 per cent it would reach near parity with the dollar and would still be about 20 per cent above the euro’s historic low of 84 cents. A lower value of the euro would reduce the prices of eurozone exports and raise the cost of imports, reducing or eliminating the current account deficits of the peripheral European countries, since about half of their trade is with countries outside the eurozone. The weaker euro would also boost Germany’s net exports, raise German wages and prices and reduce the trade imbalance within the eurozone. The increase in peripheral country net exports would also raise their gross domestic product and so reverse their recessions that were caused by higher taxes and cuts in government spending. That would make it politically easier to achieve the needed fiscal consolidations. And shifting from recession to growth would raise business incomes and employment, reducing the volume of bad loans and mortgage defaults now hurting the banks. The continuing decline of the euro reflects the market’s perception that the euro must fall or the eurozone will collapse. Investors also recall how rapidly a currency can fall: the euro fell by nearly 30% against the dollar in about a year and the British pound declined by 25% during six months in 2008. The decline of the euro can therefore occur without specific action by the European Central Bank. But a further shift by the ECB toward a looser monetary policy would speed the euro’s decline. Now in India too, RBI needs to cut the interest rate fast, so that the rupee depreciates further, at a time when the crude oil prices have cooled down a lot. This would boost India's exports but is expected to have a minimum impact on the India's oil pool account (due depreciation of the INR Vs USD). But then when you ask a train driver to drive a space craft, you know what will happen!! This is what is happening in the RBI. Moreover, the government is not pragmatic in its policies--we have a old pilot, but the model of the aircraft has changed. If I were the FM of this country, the Sensex would have been 30, 000 by now and Nifty around 9000 levels....LOL.....!!!!!!!!
Anyway, forgetting my hypothetical role as a Finance Minister, let us discuss the NCP-Congress meeting. Under pressure from Sharad Pawar, the NCP heavy-weight, the Congress agreed to set up a coordination committee to ensure its allies are consulted and involved in important decisions. After a meeting with Sonia Gandhi and the Prime Minister this evening, Mr Pawar's deputy, Praful Patel, read out a joint statement: "After deliberations, it was decided to set up an effective coordination mechanism very soon to ensure the cohesive functioning of the UPA... and to ensure UPA allies meet once a month to discuss policy and other issues." He said a similar coordination committee will be created shortly in Mumbai as well, where the NCP and Congress co-govern the state. The fact that the NCP was allowed to share this statement, signed by the Congress president and the PM, is seen as a face-saving gesture granted to Mr Pawar's party. This is expected to have a positive rub-off effect tomorrow on the over-all market sentiments.