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Saturday 23 January 2016

MARIO DRAGHI  V/S  RAGHURAM RAJAN

22ND January was lucky not only for me but for the markets too. Stock markets all round the world jumped 2%. No prizes for guessing, ECB meet on 21st concluded signaling monetary easing next March. That was what the markets understood. Mario Draghi did what Mr. Rajan is going to do in the coming RBI monetary policy, keep the rates unchanged. This is a simple wait and watch policy being adopted by most central banks with the backdrop of falling crude prices and china slowdown. In case crude prices touch $40 by March there would be some hope of stoking inflation in Euro area where current inflation rate stands at 0.2%. So everything depends on how oil prices pan out in the next 2 months.

The same conditions don’t apply to Raghuram Rajan, as he has to control inflation. But he needs to push growth and also make people understand why he cannot increase the inflation target or cut rates in every policy meet for the economy to expand. IMF has forecasted the world economy to grow by 3.4% in 2016 reducing its earlier estimate by 0.2%. According to George Soros, Oil, China slowdown and competitive devaluation are the major factors injecting deflation in the world economy. On top of that monetary easing would complicate matters.


Policy rates are expected to be unchanged in the sixth bimonthly RBI policy on 2nd February and our governor has already toughened his stand by reiterating that our macro fundamentals are strong and rupee is stable compared to other emerging markets. Both central bankers have set the tone for their next monetary policy stance and it seems rather predictable. May be central bankers are trying to instill certainty in the present uncertain times.  

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