The govt has artificially keeps a lid on interest rates for some time now. RBI is way behind the curve, and the possible consequence is going to be Stagflation. Asset inflation is here as people put money into hard assets to avoid debasing their savings. Result: Prices of Gold , Commodities, Food article and Real Estate have jumped and how!
The RBIs autonomy started fading with the shunting out of Y V Reddy, and has continued with decisions such as this and this, as govt has been consolidating its control over monetary policy and over regulators. No wonder the RBI governer takes one step forward and two steps back, as the FM dictates policy and the RBI gives mere lip service to dealing with inflation, lest it rock the gdp growth rate boast of 8.8% , that the govt proudly shows off. There are questions about the reliability of the GDP data itself read MC.
Primary Articles Inflation – which is mostly food – is at Double Digits now up to 15.4% on August 28, 2010, with the index at an all time high of 314. That too after good rains and govt mismanagement. Worse, the gap between early data and restated data on primary artificial inflation is a scary to 1 or 2%. read Capital Mind.
Savers are loosing big for more than 6 months now and this cannot go on indefinitely without affecting Consumer demand, that draws the FIIs to Indian stock markets and Consumer demand has fallen for two quarters. Check out some plain speak here
So do u see stagflation up ahead?