October 21st, 2011
by Sanjeev Kulkarni
Econintersect: If signals emanating from New Delhi and Reserve Bank are to be believed, another interest rate might be in the offing. Food inflation figures are out and the latest is raging at worrisome 10.8 percent.
Experts are expecting another rate hike despite a slowdown in the economy. RBI has hiked rate 12 times from March 2010 by 3.5 percent. Follow up:
Follow up:In a related report RBI Executive Director V.K.Sharma, in his recent address in Singapore has warned of another global financial crisis in the making:
"Alongside, non-financial corporations in the US are reportedly sitting on cash and liquid assets worth $2 trillion which they do not know what to do with it. In this background of huge deluge of global liquidity, there are unmistakable signs of asset bubble inflating again in almost a replay of the last global financial crisis."
According to Sharma, India has escaped financial instability due to proactive measures taken by RBI.
"In refreshing contrast, in India, we have had remarkable financial stability, not fortuitously, but thanks to pre-emptively and pro-actively delivered prudential measures like increase in risk weights for exposures to commercial real estate, capital market, venture capital funds and systemically important non-deposit accepting Non Banking Finance Companies (NBFCs)."
Many economists are not buying the RBI's hawkish stand and believe that the rate hike might be choking the Indian economy since high global commodity prices and supply constraints seem to be responsible for stubbornly high inflation on which RBI has no control.