Fairval

Notes on Indian equities, sectors and economy

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Why does fin secy want low interest rates?

Posted by fairval on January 29, 2010

I think this qualifies for our ‘What was that Again’ category. Do u get this? I don’t. Why the f*** should the finance secy make this statement?

Finance Secretary Ashok Chawla on Friday said, the RBI’s review policy has taken a balanced view of the current situation and the CRR hike would not have any affect either on interest rates or the industrial recovery. “In our assessment, the Reserve Bank has taken a very balanced view of the situation,” Chawla told reporters after the RBI raised Cash Reserve Ratio by (CRR) 75 basis points.  “The CRR hike of 75 basis points is, in our view, appropriate and adequate because it would only impact the excess liquidity which is in the system,” he said. The RBI’s not taking any other step on the policy rates at this stage clearly indicates that it intends to proceed in a calibrated manner in handling the recovery, he said.

Interest rates aren’t going up, sure, but the intent was to send a signal as well, not to just mop up liquidity..

Recovery is no longer a concern, inflation is. When auto demand is galloping at 50% or so, how can recovery be  concern? If, to control inflation, we need to take a bit of a knock in corporate growth, and by inference, stock markets, so be it. I am sure we shud be ok if auto sector grew 15 percent and not 45 percent. And i couldnt care less if a few realty majors went bankrupt.

An uncharitable thought, but maybe too many our policymakers have money tied in the stock and real estate markets, which perhaps makes them anxious to sustain asset market rallies. Remember how PC used to continuously talk up the markets.

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