Today when i watched Mr. P chidambaram the minister of finance he was cutting out a sorry figure in front of national broadcasters, he was evidently looking a worried man, even from watching his facial expressions one could easily make out the difficult phase he is going through , the reason ...... well the inflation figures are out and it has broken a record it had set 13 years before and now it has reached 11.05%.
The minister announced that some strict actions will have to be taken to curb the growing inflation. If we look closer, and analyse this statement , does he intend to say that he is ready to sacrifice the 9- 9.5 % GDP growth to curb the growing inflation.
Let us look closely , If the monetary control actions which he is talking of need to be implemented then RBI will have to steps in and increases its Lending rates ( CRR) .The banks will have no choice but to pass over this increase in intrest to the final customers. ( The concept here is that if interest rates are increased then it will lead to lesser money in the market , less money would be there in the hands of customers , therefore lesser demand by customers , when the demand is less the price will fall . In other words its all about Demand and Supply ) Last time when RBI increased its CRR by 1/4 points then the banks did not increase their lending rates, but considering the current situations RBI can increase the CRR by 1/2 to 1 points according to experts. As a result banks will pass over this increase in intrest to the final customers.
Corporate India which has many projects in the pipeline needs funds to shape them up , considering the most volatile and weak situation of the equity market , companies do not want to raise money via IPO's , and their 2nd option of raising money through debt would also become very expensive because of the increased intrest rates.
this is the problem in front of our finance minister , he has to walk on this delicate line and make decisions, decisions which have to please all. ( Read the Left ,Opposition ,General public and Industrialist )
The minister announced that some strict actions will have to be taken to curb the growing inflation. If we look closer, and analyse this statement , does he intend to say that he is ready to sacrifice the 9- 9.5 % GDP growth to curb the growing inflation.
Let us look closely , If the monetary control actions which he is talking of need to be implemented then RBI will have to steps in and increases its Lending rates ( CRR) .The banks will have no choice but to pass over this increase in intrest to the final customers. ( The concept here is that if interest rates are increased then it will lead to lesser money in the market , less money would be there in the hands of customers , therefore lesser demand by customers , when the demand is less the price will fall . In other words its all about Demand and Supply ) Last time when RBI increased its CRR by 1/4 points then the banks did not increase their lending rates, but considering the current situations RBI can increase the CRR by 1/2 to 1 points according to experts. As a result banks will pass over this increase in intrest to the final customers.
Corporate India which has many projects in the pipeline needs funds to shape them up , considering the most volatile and weak situation of the equity market , companies do not want to raise money via IPO's , and their 2nd option of raising money through debt would also become very expensive because of the increased intrest rates.
this is the problem in front of our finance minister , he has to walk on this delicate line and make decisions, decisions which have to please all. ( Read the Left ,Opposition ,General public and Industrialist )
No comments:
Post a Comment