Thursday, November 6, 2008

Good questions but the answer is………

Mr Ajay Shah asks in FE several good questions but he will never get to know the answer from the monopoly printer the fiat money.

Particularly the below paragraphs are noteworthy.

The Credit Policy document should have been a crisp and well-written analytical treatment of the events from September 12 onwards, explaining RBI’s moves and setting the intellectual framework for future action by RBI. Instead, the Credit Policy document seemed to be one year out of date, discussing issues like the need to rein in high credit growth. This was quite disconcerting for the market, which felt a loss of confidence in RBI’s understanding and willingness to act.

The credit policy document directly damaged credit access in the economy by reducing this confidence.

The RBI Governor must now do a speech laying out his analytical framework and policy framework. He must explain his understanding of the events from September 12 onwards, and within this framework, show what his policy framework and operating procedures will be. This will give confidence to the market that RBI has correctly understood what is going on, and that it will block Crisis #3.

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