| Infaltion, rupee worries |
If there’s any good news coming in the present scenario that has been on the inflation front which has come down to acceptable levels at 6.84% after hitting the high at over 12% in September.
The fall is mainly attributed to the slide in fuel prices and would undoubtedly help the central bank some much needed breathing space on the interest rates and liquidity fronts.
Therein lies the classical dilemma facing economists. On one hand the RBI is under pressure to offset the effects of global slowdown by giving booster shots to enhance money supply in the market and on the other the overall cost of living including the prices of bread & butter items has to maintained at reasonable levels
RBI Governor Subbarao will certainly seek to follow the middle path, as the government will not at any cost want a situation where prices go up; that too in an election year. But, certainly, there would be moves to ease the money supply in the market to ensure growth.
That’s why after months of tightening the belt in way of raising cash reserve ratio and maintaining interest rates at near to steady levels, the RBI is now slowly but surely testing waters in way announcing sops for realty sector before going all out to bring in more liquidity in the system.
Rupee
With investors pulling out money out of the Indian rupee and aggravated by speculation that more will flow out, the rupee has slumped to the lowest since 2003. Although, this might come as good news to the IT companies and the export oriented sectors, the weakening rupee for sure would play havoc with the government’s finances.
The substantial fall in the rupee’s value can be attributed to:
1. The global strengthening of the dollar as investors, fearing uncertain times ahead, are pulling out money from other currencies and putting it in US Dollars.
2. FII’s exiting from the Indian stock markets to due to financial crisis at home
3. Widening trade deficit has also played a role as exporters are earning fewer dollars compared to what importers are spending, thus negating the value of rupee..
The Rupee has also been dropping in reaction to the deteriorating current account situation. The current account deficit rocketed to USD 10.7 billion in the three months from April to June, up from a USD 1.04 billion gap in the previous quarter.
|
|
|
