Q: Will the Reserve Bank of India cut rates on the basis of this retail inflation number?A: That is unlikely. To be sure, retail inflation is now well below the RBI’s four percent target. But the central bank will look through the base effects. It will also consider that core inflation remains high and it has said that the output gap has all but disappeared. The media is full of reports of the government planning plenty of freebies before the elections, which will have an adverse effect on the fiscal deficit, especially as Goods & Service Tax (GST) collections are way below target. Crude oil prices are volatile and need to be watched carefully. The rupee too has been weakening again. Under these circumstances, the Reserve Bank of India will probably shift its stance back to neutral and wait and watch. … [Read more...] about Quick Take | 6 questions answered by inflation numbers
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Nevertheless, it’s very likely that central banks will once again ride to the rescue. For several reasons: one, they have done so for far less reason; two, they will say it is necessary to keep confidence up; and three, it takes several months for a monetary stimulus to be effective, so cutting early may help the economy recover once the impact of the virus ebbs -- of course, that will also fuel the mother of all market rallies then. More importantly, central bank action may be needed to ensure that small businesses do not fold up and that banks relax their norms for classifying loans as bad. … [Read more...] about Moneycontrol Pro Weekender: Time to pay the bill?
The markets are betting that this means more stimulus from China and some furious backpedalling from the US Federal Reserve and the European Central Bank. And why not---the years after the financial crisis have proved again and again the central banks rush in to the rescue at the first hint of trouble. … [Read more...] about Opinion | Can Trump heroically bring the world economy back from the brink?