RAGHURAM RAJAN - BRILLIANT BUT PRISONER OF IMAGE.? No one doubts eminence of our governor RBI .It is so refreshing to see a young face in a press conference delineating on the monetary policy. We have had either dour economists or officious bureaucrats pontificating on what should be done. The only thing common between them is the distance from reality - really far. Post 2007, every body is bitten by what I call Reddy syndrome. What is this? It simply means a bravado , to refuse to toe the GOI line or public perception. To remain defiant almost to the extent of a belligerence in refusing to change their prescriptions. The intelligentsia and media laps them up to give them a salim javed crypt ed image of a middle aged or old angry man who finds govt insincere in its declared intentions of financial profligacy. And like a strict teacher who brooks no indiscipline they expect the govt and macro economics to conform to their desired behaviour patterns. In this strident pursuit , they become prisoners of this image involuntarily.This robs them of a fundamental characteristic of an enlightened pro- never shy away from a revisit or re validation of your concepts and beliefs. I hope the young and youthful governor has not fallen into this trap, though I am not sure of it as of now Rip the context of open and not so open suggestions from FM for a rate cut. Look at it objectively. What the present environment looks like? An undisputed fall in inflation by almost @2% .Granted that this is primarily driven by huge fall in crude prices from110 to 70 $ levels. But in the past its unbridled rise was enough of a ground to fuel inflation fears and a raise in interest rates. Why its fall should not reverse this process? When it is clear that these prices are not going to spiral in the near term. Two of the biggest consumers, China and Japan, have serious low growth/ deflation issues to confront. The CAD is well within the .More than anything the manufacturing sector is on a precarious state. It sees bright horizons far ahead with make in India calls but is now on clutches. Why the RBI governor is reticent despite an admission :“,the softening of inflation , easing of commodity prices and input costs , comfortable liquidity conditions and rising business confidence as well as purchasing activity are gathering, conditions congenial for a turnaround “. In his own words he admits a nagging doubt whether these are transient. He is comfortable seeing an emerging continual trend. I doubt whether he is overplaying his game. Caution may be the religion for a banker. But being growth stimulant is equally his priority. A banker. Central or commercial, can not avoid risk. When mitigating circumstances exist as per his own admission, baulking at contributory efforts is to me a narrow banking .Nobody has evolved an arithmetical formula for rate- inflation interplay. But it 8% repo is arrived on a scenario of 8 plus inflation, it can not continue at 8 when the rates have fallen over two quarters to around 6%.To hold a theory it should be near around 5 is to even examine a rate cut is a overkill. The governor has sagely advice to corporates pumping for a rate cut! Cut your risk premium by being efficient. That should entitle you to lower margin over the base rate .Is he not sounding like the King who said that if you can not afford breads eat cake instead!!One thing worries me more. The export industry thrives on being internationally competitive. IIf CAD is comfortable it is thanks to depressed oil prices and curbs on imports of gold. But its comfort should be ideally drawn by burgeoning exports. Towards this end at least a rate cut is critical .The well reasoned man that he is he doles out one hope: that such policy corrections need not emerge only at the appointed date for review.It can come earlier in the cycle. That is reassuring.
Posted on: Wed, 03 Dec 2014 05:02:56 +0000
Trending Topics
Recently Viewed Topics
© 2015