Tuesday, July 30, 2013

This is called Checkmate Mr. P. Chidambaram

Today a strange thing happened in Indian Financial Markets. After RBI's monetary policy, along with equity markets Rupee also crashed. This is ironic and hope will be an eye opener for RBI and finance ministry which manipulates RBI from the background. It is sad that RBI becomes a puppet and now humiliated in front of the whole world.

This unfortunately happened after RBI's supposed monetary tightening in the form of Reduction in Repo limit last week. When RBI announced the measures the Rupee was trading at around 59.60. Now today it is decreased and at 60.41. From seemingly unlimited Repo limit to now 37000 Crores RBI has reduced the liquidity in 2 tranches. Even yesterday RBI MSF window saw huge drawing from Banks at 11% and odd. Even with all these, Rupee depreciated today which is very bad for the credibility of the RBI.

RBI today made a mistake of talking in government's voice. Mr. P. Chidambaram the minister for real estate and share market welfare who is also in-charge of finance ministry used to tell every week that the interest rate will be cut very soon and often tells that whatever RBI is doing to strengthen Rupee is temporary. That is for political reasons. He knew that Indian Economy is headed for collapse.  RBI need not have spoken in that language. IT IS CREDIBILITY CRISIS AT RBI.

Now if RBI went back on Repo limit measures it would be considered as easing and  if that happens the market will punish Rupee. Otherwise also now the interest rate is clearly hardening. It is time for RBI to raise Repo rate and CRR to 1 percentage each. The failure of IIB ( inflation bonds) should be a eye opener for RBI.

Now if government still wants to help and save brokers, then it is running the risk on huge economic collapse. Better late than never.

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