GaveKal: Keep a close watch on Indian monetary policy
This week’s edition of John Mauldin’s Thoughts from the Frontline contains an essay by GaveKal: So What Should We Worry About?, a followup to their previous one: Why We Remain Bullish.
Besides listing financial excesses that could potentially disrupt the current benign investment environment, GaveKal offers its perspective on India:
. . . it is interesting to note that, so far, the RBI’s repeated interest rate increases have only had a muted impact on prices, a fact which may explain why the central bank now seems to be changing policy.
Indeed, last week, and against most observers’ expectations, the Indian central bank did not raise rates at its meeting. Instead, it seems that the authorities are allowing the currency to rise and hopefully thereby absorb some of the country’s inflationary pressures (linked to energy and higher food prices).
. . . we would not be surprised if Asian central banks were to study developments in India carefully over the coming quarters. After all, India is blazing a path that a number of Asian countries may yet decide to follow.
Their point is that the Indian rupee (along with other Asian currencies) might continue to strengthen significantly, with the result that Asia’s private savers would likely start repatriating capital, further amplifying exchange rate and interest rate movements. This would also likely lead to collapses in monetary aggregates in the Europe and the US.
Very interesting!
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May 8th, 2007 at 4:01 pm
By the way some foreign banks are predicting Rs. 36 in the next few months. As one RJD MP told PC, “we dont understand the growth you are harping about. We want Dal/Roti.” . Let us see who wins poor masses vs. Finance Capital.