Financial Markets and the Economy - Intersections

(The following article appeared on cnbctv18.com on August 13, 2018. https://www.cnbctv18.com/views/evaluating-indias-currency-contingency-plan-502021.htm ) While INR has weakened this year, the RBI has since kept up a quietly determined defense. Friday’s data release confirms that the RBI sold US$ 25B during April-June 2018. Yet, nervousness in our currency markets persists, and with reason. First, while Turkey’s is an extreme situation that bears little resemblance to our own context, the events there underscore the brittle nature of global markets, geopolitics, and sentiment. Second, our own vulnerabilities persist. India’s external balance is unhealthy. Last year, we borrowed fickle, carry-seeking funds to both pay for our higher oil, electronics and gold imports, and to increase RBI’s currency reserves. The balance looks worse this year, and existing large carry positions may reverse. Add the weaknesses in our banking system, a tricky fiscal bala...

( The following article appeared on cnbctv18.com on 31st July 2018.  https://www.cnbctv18.com/views/rbi-monetary-policy-the-case-for-and-against-raising-rates-409951.htm ) August India MPC Preview Analyst polls and market prices indicate expectations of a 25bps repo rate hike tomorrow, when the monetary policy committee (MPC) releases its third bi-monthly statement.  Is a rate hike likely? What does the MPC’s current “neutral” stance really mean? What is the outlook for system liquidity and markets? The overt case for a rate hike There are core arguments for a rate hike tomorrow.  First, since the previous MPC meeting, the government has delivered on its promise of sharp increases in minimum support prices (MSPs) for crops. So far, the MPC had politely chosen to wait-and-watch on MSP, even as the broader market saw this as inevitable. Now, notwithstanding soft food inflation prints and monsoon progress since its last meeting, the MPC must finally...