The stock markets indicate the collective opinion of investors, and they are now indicating nervousness. The markets are reflecting the investor's nervousness on the growth story, and on the inability to control the macroeconomic environment. The markets are ringing alarm bells that inflation continues to be higher than expected despite a hefty cumulative increase of 325 basis percentage points in the policy rates since early 2010. Also, there are increasing indications of a moderation in growth. The Reserve Bank of India (RBI) embarked on a rate hike programme to control the inflation rate and maintain growth. Interest rates systematically went up throughout 2010 and 2011 but inflation too continued to rise unabatedly . The rates have been hiked to such an extent that now the interest rates are beginning to hurt growth, but the inflation rate is still showing no signs of slowing down. This is a double whammy, as the stock markets, the basic fabric of the growth story, is being threatened. On the one hand, the RBI is increasing rates but this is not supported by fiscal measures. The government, through its various guarantee schemes, is indirectly introducing a stimulus in the economy which is supporting the demand for goods and services.
ET
No comments:
Post a Comment