Saturday, September 21, 2013

Welcome Raghuram Rajan

Raghuram Rajan has come with a bang.

He refuses to join the FED party and signaled that he is going to target the inflation. While this augurs well to the long term financial health of the country, in short term some inevitable pain is bound to happen for leveraged players.

As expected the corporate mafia is upset. The political class who thought Raghu is a pushover is shell shocked. Chidambaram did not come on TV from yesterday. Montek Singh is so shell shocked yesterday as he refused to comment on RBI policy initially only to do a volte-face later on. We will take you through a happenings around Monetary policy from Mangoman. Your only source of very honest and open and brutal truth of Indian Economics.


Chidambaram would have thought Raghu would help him to buy time until next elections.  This is especially true when Raghu said last year that RBI was having room to cut rates. My opinion is that Raghu underplayed until he gets the chair and after getting the chair he is doing what he has to do. I fully support his action. That is how we need to do it.  Montek Singh who looks like a intelligent is so shocked yesterday and as usual he predicts good times for economy from here on. It should be noted that he along with C.Rangarajan predicted   the bottoming out for the past 5 years which is  unprecedented. Entire political class may not be happy now. But they have no other option but to wait.


The actual policy action is that Raghu reduced MSF rates from 10.25 to 9.5 and increased Repo rates from 7.25 to 7.5.  In actual terms this is net positive for banks. Banks and Industry to be thankful for him to reduce the rates. But still they are critical of him. This is because he sounds very hawkish and raised the rates.

The actual fact of the matter is that the MSF is primarily a liquidity instrument and banks are not supposed to borrow in that window. If a bank is doing good business they will manage their own funds and even in times of crunch Repo would help them. If Repo also exhausted then they should go to MSF which was introduced recently after Lehman collapse. But the in-efficient Indian bankers now claiming MSF as a birth right and continuously using this window for their day to day operations. This is because

1. For most of them their loan book is nothing but a sham.
2. A lot of money is stuck in real estate and except the retail loans all the other loans are stuck and they merely do  a CDR or eve rgreening of loans. Even then they are showing huge NPA's inspite of CDR's.
3. That causes them to draw money from Repo daily to the tune of 2 lakh crores until few months.
4. Since Subbu restricted Repo they are using MSF.
5. Instead of being happy to see reduced MSF, they are concerned.

Pratip Chaudhuri

A side comedy show is being enacted by SBI Chief. In my opinion is one of the chamcha's for Finance Minister. Having broken his nose twice during previous Subbu's regime, he is not stopping talking nonsense. Already ridiculed once by Chakraborty, he is not stopping talking about CRR. He always advocates the CRR should be abolished.

Yesterday Raghu took a dig at him by telling that CRR issue is a peanuts compared with larger issue. Now we can take a informed decision whether IMF economist Raghu is right or Chaudhuri?

After Raghu spoke about peanuts, Chaudhuri was furious and he shows his displeasure known by telling the MSF rate reduction is peanuts for him. What a loser?

I have already written a few articles about this Chap. Last week he spoke about SBI flushing with funds and now he says he is gonna to raise rates. He may tell because of others increasing rates he has to. Whatever may be.

I wonder what is his problem in raising the rates? probably he thinks that if he raises rates then the valuable borrowers like kingfisher will not borrow from him? Is that it?  The dancer who does not know dancing is criticizing the stage. This is what happening in India.

Pratip Chaudhuri is a typical example of Indian Banking System. The lazy bankers.

Raghuram Rajan

Now Raghu having raised Repo and has given a message to market and others that he is gonna to attack inflation. But mangoman is not ready to give full marks to Raghu even though I feel he started right. In my opinion Repo has to be raised to another 1% immediately.  There are thousands of policy rates floating around in India. He has to abolish all rate and keep only Repo and CRR.

The good thing he said is that unlike Subbu, he said he is neutral and not committing anything to corporate mafia in terms of rate cut. He links rates to inflation clearly. That is only the reason markets as well as corporates, bankers all are upset.


  1. RR will capitulate eventually. Already OMO announcement yesterday shows he will keep long end yields depressed to please "genuine Corporates in need of funds".

  2. I dont think so.

    In short term he has to make some compromises which he is making...

    remember before coming to hot seat, he said RBI has room to cut rates....

    First corporate mafia should be told that it is hard to get free money..and then slowly the tap should be closed....

    And I think that is happening

  3. well well it is just like benny talking about taper not taper..i just think all rates are going to blow up soon it isjust taking long ....benny and his game on off scenario

    I AM SURE he is freeking out with rates at 2.6 3% ...the next time he bullshits it is going to 8% or higher 10 year... that will set the stage for deflationary collapse bigger than lehman....IT IS NOT FAR OFF...