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LATEST NEWS UPDATES | Strange optimism -Renu Kohli

Strange optimism -Renu Kohli

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published Published on Feb 15, 2022   modified Modified on Feb 17, 2022

-The Telegraph

The RBI’s inflation analysis goes against the grain

The budget for 2022-23 was saluted for its growth push despite the record gap in revenues and expenditures: Rs 15 trillion would be borrowed to fill these. This, however, did not hold back the stock market from touching the sky, nor commentary greeting the raised capex to draw in private investments, create jobs, and support demand. Days later, the euphoria subsided as fears set in over fiscal dominance in a riskier, inflationary environment within India and abroad. The 10-year bond, a benchmark for bank loan rates, rose by 30 basis points; the Reserve Bank of India rejected a sovereign debt auction in the budget week and cancelled another debt sale scheduled later to signal its discomfort with higher interest rates. The central bank then saved the day in an anti-climax last week by surprisingly not changing the monetary policy rate and an unexpectedly moderate inflation outlook, forecasting a progressive decline to 4.5% next year.

The policy moves come against a 9.2% GDP growth rebound in 2021-22 that marks India as the world’s ‘fastest-growing’ economy, a sobriquet repeated untiringly. A misleading distinction, as it were, given a -6.6% fall the previous year and, now, further proven by the desperation to grow through a borrowings-fuelled fiscal expansion and ‘looser-for-longer’ monetary policy.

Although the central bank didn’t spell out how the resources to fund budgeted spending will be managed, the benign inflation outlook moderated yields on government securities that are sold to borrow market funds. For now, market fears about interest rates rising have been allayed on account of inflation, deferring those due to the large-scale diversion of the economy’s savings to the government. Analysts have also pushed forward their rate hike expectations. But none is sure for how long.

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The Telegraph, 15 February, 2022, https://www.telegraphindia.com/opinion/strange-optimism-the-reserve-bank-of-indias-inflation-analysis-goes-against-the-grain/cid/1851908


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