We seem to have a chicken and egg problem here. The liquidity shortage is being blamed for the dire situation that Indian industry finds itself in.
Global liquidity has gone down a little. What seems to have tipped the balance is a sudden realisation in the markets that the rising cost of cash would hurt global growth. That, in turn, would impinge on the demand for commodities and high-yielding currencies, says Abheek Barua.
Some more write-downs in US banks could push oil prices back to over $140 in no time.
For some time, the rate of inflation measured week to week has been falling.
More importantly, this period has seen a fairly major shift in market perceptions -- traders are reconciling to the prospect of medium-term decline in the exchange rate instead of dismissing any episode of rupee depreciation as a transient deviation from a path of continuous appreciation. A combination of local price impulses and these global pressures has pushed up domestic inflation. Wholesale price inflation for the week ended February 23 printed at 5.02 per cent.
Penetrating under-banked segments may have a fallout like the US sub-prime crisis.
Problems could linger both in the financial markets and the real sector but one could just see the mix of data and news emerging from the US turning favourable. This could be the turning point for Indian equity markets.
Our stock markets will remain volatile for a while and upswings could be followed by a downturn.
Asian economies, including India, are likely to be hit hard in the event of a slowdown in the US.
If there is indeed a slowdown, it is unlikely to be confined to the export sectors.
Look at the GDP data from the demand side, and you get a growth of only 7 per cent.
From India's perspective, a decline in the dollar against the major currencies invariably means appreciation for the rupee.
The reason: The consensus was that the US economy was headed for a slowdown. The global economy is unlikely to slow down significantly.
A way to create a level playing field would be to allow banks to raise external borrowings specifically for lending to SMEs.
Higher inflation might just be the necessary cost that we need to bear in making a transition to a higher growth trajectory.
One of the implications of rising interest rates that deserves more attention than it gets in the current discourse is that of deteriorating credit quality.
The principles of central banking in Asia are likely to change. Be prepared for surprises.
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