Modi’s demonetisation decision is like pressing the nuclear button
The Reserve Bank of India surprised the market with its first monetary policy review, after demonetisation, by keeping its repo rate unchanged at 6.25%. Noted Ajit Ranade, economist and political analyst spoke on impact of demonetisation on growth and the possible upside risks to inflation. Ranade in his interview stated that the goal is not to move to cashless, but use less cash. There was big expectation of a rate cut from RBI. But the central bank has surprised everyone. Are you disappointed that RBI did not cut the policy rate this time? Not at all, there are at least five reasons for caution that I can think of: (a) The US rates are going up, and a Fed hike is almost certain. Most developed country bond yields are also going up. So gap between Indian and US rates is narrowing. (b) Oil prices are up after OPEC decision to cut output that may lead to some inflationary pressure. (c) GST will also be inflationary in the beginning period and might warrant...