The saying fits perfectly for the Central banks world over. The other day when the world was expecting a Fed tapering, Fed Reserve gave the unexpected by maintaining the status quo on bond purchase program. And now when markets expected RBI to be soft on monetary policy, Dr Rajan delivered the unexpected by hiking the repo rate. When Dr Raghuram Rajan said he does not have a magic wand to reverse the negative trends in the Indian economy, people thought he made such a statement out of modesty and they indeed expected a magical act from the RBI governor. But today, he did what his predecessor Dr Subbarao did not do in this situation. Hiked repo rate. And of course that would be detrimental for our GDP growth in the near term, but then the inflation concerns are growing by the day.
After the hoopla around Dr Rajan of being a rock star central banker, Dr Rajan has bitten the bullet by raising the interest rates in his very first credit policy. But that's the reality and an astute economist like Dr Rajan knows it fully well of the current macro economic situation. Indian markets yesterday rose by maximum in a single trading day in the last 3 years dancing to the tunes of Fed Reserve's non action on tapering. But today, the reality has bitten the investors as the markets have crashed and they will continue to correct in the days ahead.
Going forward, investors must realize that our fundamentals are really weak and RBI does not have a magic wand to reverse the downtrends all alone. Government has pitch in with fiscal measures to bring back confidence levels back in the economy. On the global front Fed tapering is a question of when and not why, as sooner than later Fed might start the tapering which will adverse impact on the Indian markets.
As such, Government and Mr Chidambaram has to "walk all alone" towards the growth path in the current scenario.
Gopalakrishnan V, Founder & CEO, Money Avenues.
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