The markets can take a walk for today but they will come back to re-appreciating what RBI Governor Rajan did when they can. Even if Rajan hadn't made the signal announcement on rate cuts, we better listen to what he says. In the 15 months since he took over, currency has stabilised, stock markets have rebounded to lifetime highs, bond markets have seen bigger FII participation than stock markets, gold imports have fallen until recently, and bond yields have fallen over 150 per cent insinuating a big fall in sovereign borrowing rates which should augur well for the borrowers generally. Today, the INR Bond has become one of the best fixed-income investments in the world - giving positive dollarised returns - better than many G8 economies. Even if the Fed Taper is pre-dated in 2015, Rajan is leaving no stone unturned to ringfence the economy from shocks coming from hot money flows. Remember the last time he warned a few quarters back: "We must use this window of capital flows to strengthen our economy". The markets were not expecting a rate hike then. He hiked for a solitary reason to attract short-term inflows and prevent a run on Indian bonds. Again, two quarters ago, he warned the world is not yet out of the woods as if he got premonition about a second crisis coming. The last time around, he was the only one who saw it coming - earning the wrath of Gods like Greenspan and Goldman CEO. This time not many paid heed to his warning again but we just saw the European unravelling and the rumblings in the US and Japan forcing most Central Banks in the world to think independent of each other, to fend off their wounds.
I followed his press conference closely today and feel there is a lot he says that is still work-in-progress before India can expect a rate cut even if the path is now more or less visible. His concerns are valid: Core Inflation is still high, we got relief on Crude Oil prices yes, but we may again see a sharp shoot-up in gold prices putting pressure on the current account deficit, we have yet to see the clouds lifting on the road ahead for savers and producers, we have yet to see the big banks cut rates despite bank rate lowered some time back, we have to still clear the projects on Infrastructure and clear the cobwebs on coal and power issues, the issues of reducing the fiscal deficit, we have to address the issues of accountability of big promoters running away with bad debts (a quick rate cut will once again make the banks run with the wolves again) and we have to address the whole issue of return of confidence on financial market investments. Anyone who read the book "Faultlines" by Rajan, especially the chapter on India will find all these concerns well-highlighted by him. I am sure he is not going to give away the concessional cuts Corporate India unless he addresses these bottlenecks or fixes themfor good. He has talked about why growth is crucial for India but he wants to see growth on a sustainable path - a path that will not just appear as a false-start but run course for several years taking the step-up approach from 5.5 to 6.5 per cent and beyond in GDP growth.
Unlike the previous RBI Governors, Rajan has an immaculate gentlemanly nature to explain how his policy translates into action and what it means for all the stakeholders in the economy. He was not talking down to the audience today like Dr.YV Reddy, he didn't make it sound like rocket science like Dr Rangarajan and he was not sounding amateurish and out-of-control like Mr Subba Rao - although all of them gave RBI its much-revered autonomy better than three-fourths of the world central banks. Indians in general and markets in particular should weigh his words more seriously because this is a home-grown talent that is being sought after by world leaders. When the BRICS Bank was set up early this year, the Chinese Premier sought our PM's green signal to make Dr Raghuram Rajan its first Chairman. Modi rightly said no because Rajan has been a lucky find for India. Let's not push our luck fast by pressurising Rajan to do tokenism. He is capable of more than that. Let him decide that. If he has his way, now that his batchmate has joined Ministry of Finance as Minister of State Jayant Sinha, then the duo will herald a golden era for Indian Banks and Financial Markets and also restore the confidence of the savers and investors in the Indian Rupee assets. Amen.
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