Wednesday, April 18, 2012

Subbarao risks his reputation

Subbarao could not sit tight.

Now the new norm for RBI in inflation front is 7%. RBI could not withstand the pressure from the corporate mafia and 'big brother' government. Let us see how it would affect you and me.

RBI comes up with a meek explanation for rate cut saying that the core inflation reduced below 5. Now the core inflation is nothing but inflation minus food and fuel. Unfortunately in India inflation is decided only by these components. These are the components affecting people much. RBI has taken a western concept and justified their judgement.

Former RBI Governor S.S.Tarapore, IMF and many other independent analysts slams RBI for this decision. Let us see who will get benefitted?

1. Inspite of rate cut banks are reluctant to pass on the benefits. That means the 50 bps will not be translated
    into your loan EMI. We need to wait and watch.
2. It helps markets for a short time for sentiment booster.
3. It helps RE guys to try and sell their unsold inventory saying that the interest rate is gonna to reduce from
4. RE guys and other corporates who are heavily indepted to banks are not going to benefit hugely by 50 bps even when the banks  decided to pass on to them,

our CPI is well above 8%. Food inflation which was subdued during January due to base effect and seasonal effect rising its ugly face again. Rupee raises to 51.50 effortlessly. Congress losing in Delhi is a grim remainder that they cannot afford to take bold decisions.

By exhausting their arsenal, RBI cannot afford to cut the rates atleast for another 6 months minimum.

Interesting days ahead.

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