Managing inflationary pressures is the biggest challenge: PMEAC chairman

"We must use all of our policy instruments-interventions in the grain market, fiscal and monetary policies-to bring down inflation further and re-anchor inflationary expectations to the 5% comfort zone," C Rangarajan, chairman of the Prime Minister's Economic Advisory Council said

Vadodara: Managing inflationary pressures-particularly in food grain prices-was the biggest challenge before the policy-makers, reports PTI quoting C Rangarajan, chairman of the Prime Minister's Economic Advisory Council.

Mr Rangarajan, a former governor of Reserve Bank of India (RBI), was speaking on the topic 'the growth path and some concerns on the way' at a function at Federation of Gujarat Industries (FGI) today.

"There are a few areas where immediate engagement of the policy-makers is needed. In the short run, managing inflationary pressures, particularly foodgrain prices, is the biggest challenge," he said.

"We also need to watch out what happens to crude prices in the global markets. We must remain committed to maintaining inflation at a low level."

Saying that he did not subscribe to the idea that high growth demanded higher level of inflation, he stated, "We must use all of our policy instruments-interventions in the grain market, fiscal and monetary policies-to bring down inflation further and re-anchor inflationary expectations to the 5% comfort zone."

The second concern, he said, was the balance of payments as the current account deficit had remained very high at 3.7% of the gross domestic product (GDP) in the first half of 2010-11. "Efforts must be made to bring down the current account deficit to a more manageable level of 2% to 2.5% of GDP."

This, he said was desirable to impart much-needed stability on the external payment front and to reduce the risk to the domestic economy from volatility in international financial markets.

Another critical challenge was fiscal consolidation which was a necessary pre-requisite for sustained growth, he added.


Kalmadi likely to be arrested by CBI today

The CBI had gathered fresh leads after the trip of its two-member team to London in connection with cases related to alleged irregularities in hiring of AM Films and AM Car and Van Hire Limited during QBR held in 2009 at exorbitant rates

New Delhi: Suresh Kalmadi is likely to be arrested today by the Central Bureau of Investigation (CBI) which questioned him over alleged irregularities in the conduct of Queen's Baton Relay (QBR) held in London in 2009, reports PTI.

The agency is expected to arrest him later today and come out with a statement, CBI sources said.

The agency had asked Mr Kalmadi, sacked as chairman of the Commonwealth Games (CWG) organising committee, to appear before it in order to clarify some new issues which surfaced during the visit of the agency's officials to London in connection with QBR scam.

Mr Kalmadi had earlier expressed his inability to appear before the CBI citing his foreign visit, saying he would return home only after 19th April. But even after returning from his visit abroad, he did not turn up before the agency saying he was still not in Delhi.

The CBI had gathered fresh leads after the trip of its two-member team to London in connection with cases related to alleged irregularities in hiring of AM Films and AM Car and Van Hire Limited during QBR held in 2009 at exorbitant rates, sources in the agency said.

The team has spoken to the London-based owner of both the companies-Ashish Patel-who has provided information and documents with regard to the allegedly overvalued deal, the sources said.

AM Car and Van Hire company in London was engaged during QBR in 2009 to provide services like taxis for the guests and OC members. AM Films was hired to provide display monitors during the event.

The CBI team during its visit to London had also questioned other companies which were in the fray for the contract.

The agency had sent a two-member team comprising additional director VK Gupta and DIG SK Palsania to London to probe the payments made to the two companies allegedly with Mr Kalmadi's tacit approval, they said.

CBI now wants Mr Kalmadi to respond to the fresh information on the monetary transactions with the two companies.

This is the third time that Mr Kalmadi has appeared before the investigating agency for facing questions relating to the CWG scam.


Why blame speculators?

Whether it is cotton or copper, oil or food, politicians are in the habit of blaming the spiraling prices on speculators. But the reality is that loose monetary policies create an environment that encourages cheap loans which speculators are happy to put to use, raising the prices of commodities

They are bad. They are evil. They are no good. Who has this awful reputation? Speculators, of course. They are greedy, self-indulgent with an insatiable lust for money. At least that is what politicians want us to think. As gasoline prices in the United States head toward $6 a gallon ($1.60 a litre), president Barack Obama has promised to do something about these wicked, wicked people. He said that he was setting up the team "to root out any cases of fraud or manipulation in the oil markets that might affect gas prices-and that includes the role of traders and speculators." There is one problem. He has to start with himself, the US government, and governments around the world.

In the past few years, the world has been subjected to politicians castigating markets for high prices. Sometimes it is food. Other times it is energy. Whatever the commodity, and whatever the price, they seem to believe that the reason has something to do with the market. The reality is that it always gets back to the government and its policies. It is also not just one government. It is all of them. In recent years, governments around the world have followed policies to stimulate growth in their economies that have had unintended consequences for others.

The high price of oil is generally ascribed to several factors. The first is the unrest in the Middle East, specifically the lack of shipments from Libya. Another factor is the dollar. Since oil is quoted in dollars, its devaluation has caused oil to become less expensive. Third, economists like to point to demand from emerging markets whose red-hot economies require ever more oil. All of these are good points, but how did they happen?

The lack of supply from Libya is certainly a valid reason, but I cannot remember a time when the Middle East wasn't volatile. At the beginning of the Iraq war the price of oil "spiked" to $37 a barrel. Although Iraqi oil had already been subject to an embargo, a substantial amount was leaking onto the world markets. This ceased after the war started, but the price of oil was soon down to $30 a barrel.

The low dollar is an excellent cause for the high price of oil; but who exactly is responsible for that? The central bank of the United States government; the Federal Reserve in order to stimulate the economy has embarked on a programme of ultra-low interest rates and since last summer, quantitative easing. The programme has had the intended effect. US interest rates are very low, but so is the value of the dollar.

The monetary easing has leaked out of the US and into emerging markets. Capital flows into the Asian and Latin American blocs have exceeded the last peak in 2006-07 and Asian inflows are 60% above that level. According to IMF research, monetary easing by the US, Japan and the EU has in the past transferred itself completely to emerging markets. This has pushed up the demand for subsidised oil as well as inflation in those markets to dangerous levels.

It is not only the G4. The Chinese bank lending programmes, over the past two years, have pumped close to $3 trillion into their economy. This not only stimulated a housing bubble, but additional demand. China's currency manipulation has resulted in a foreign reserves pile which has helped keep US interest rates low.

As to the speculators themselves, we have to ask where did they get all the money from to fuel their rampant speculation? Well, the loose monetary policies have created an environment that has encouraged cheap loans either directly or through the carry trade. US banks are flush with money, but with the economy still weak, the demand for loans is low. In contrast, speculators are happy to put this cheap cash to work raising the price of cotton, metals, coking coal, sugar, oil, coffee, copper, rice, corn, heating oil and gold to new highs. Free money always finds an outlet. Since the cost of capital does not reflect its true value, its allocation ceases to be efficient.

The Federal Reserve's job, according to the former chairman William Martin, was "to take away the punch bowl just as the party gets going". The present central bankers gave the punch bowl to the worst alcoholics and are then surprised when they trash the place.

According to a US senate committee, the 2008 crash was caused by low policy interest rates in rich countries and recycled trade deficit dollars out of poor export financing foreign countries and exacerbated by not understanding that markets need fair and enforced rules to thrive. Sound familiar? So world leaders shouldn't blame the speculators, if they want the culprit they only need to look in a mirror.

(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected])




5 years ago

starting with the developed world.......the fed , ecb ......

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