Tuesday, December 13, 2011

Europe Summit - A Huge Failure?

I am trying to analyse the failure of European summit happened last week in the backdrop of Indian stock markets.

On Friday after conclusion of summit European markets rallied up o 2%. And on Monday they have fallen up to 3%. This shows the blood sucking quality of market participants. Market does not bother except  what is in it for itself. Market is looking for cheap funds to punt.

People would be surprised to see that we have fallen irrespective of what happened in Europe. However, our fall is accelerated and will be accelerated with what is happening in Europe. With already falling exports bill, any problem for Europe would be a problem for India.

India's rupee is fast losing value and corporate mafia's pressure tactics to cut CRR or interest rates also would be difficult for RBI as adding liquidity for depreciating rupee will further affect Rupee.

If the fall is huge this week, just for the purpose of sentiment boost, RBI may be forced by government to cut CRR rates. But as per my understanding, it is not in the best interest of RBI and country to cut CRR unless we see a meaningful fall in the inflation rates. Atleast 4-5 is the reasonable inflation rate at which we should consider monetary easing.

Also a CRR cut would not help much in real terms. There is also a possibility that after this CRR cut  RBI may be forced to raise interest rate again either to control Rupee slide or Inflation. RBI needs to avoid such a situation.

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