Fairval

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75 bp CRR hike – good but not enuf

Posted by fairval on January 29, 2010

At this blog, we have been following the inflation scenario closely. We arent surprised with the 75 bp CRR hike. The market was expecting a 50 bp hike. Think the FM will have to do more. Repo rate hike is essential. All this talk of incipient recovery, so lets not touch rates so soon is baloney. It serves the interests of corporates to say that.

The consumer is bleeding big time, and if inflation is not arrested, demand will die anyway. Have no clue if higher foodgrain prices are benefitting the farmers. Most likely not, it would the middlemen making money. Unfortunately, no one  seems to understand the food chain in India. So very strong govt signalling on inflation stance is important.

 And nothing better than interest rates to signal on inflation. In my view, india needs controlled inflation more than growth.

As it is, we have this huge inability to handle growth. The moment the economy grows 8% of thereabouts, inflation goes out of control – right from asset prices, to everyday costs. Unlike China, we have never even had 18 months of the desirable trinity – moderate (<5% inflation), moderate interest rates and strong growth. Too many structural issues perhaps which prevent this.

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