Joined: 21 June 2008
higher inflation means higher cost of living and hence lesser savings. Lesser savings mean lesser money inflow into the stock market . Lesser money means lesser demand for the securities available in the market and hence a dip in Sensex points! And thats just the demand and supply side.
So, who do you think is responsible for this inflation??
this invention should be made affordable through immense research and development. This not only reduces our dependency on global oil prices, but also do some good to our environment keeping it green.
Stressing that its main objective is to maintain price stability and growth momentum, Y V Reddy, governor, Reserve Bank of India said supply-side measures taken by government to tame inflation will yield results in the coming months.
''Overall, some abatement of global prices, indication of better domestic supply and addition to our buffer stocks, along with a series of measures already taken by government on the supply side are expected to yield results in the months to come,'' Reddy said.
In medium term, however, the National Food Security Mission, launched about two years ago, should yield positive results.
''RBI's major objectives are to maintain price stability, and maintain growth momentum, especially employment generation. In this endeavour, agriculture plays a critical role since agricultural commodities have a relatively significant weight in price indices in our country and also in anchoring inflation expectation,'' he said.
Reddy noted that with rapid growth in the country, food consumption will rise in an unprecedented fashion and emphasised on improving the food supply, which he felt was possible because of enough scope in raising the productivity level.
''With rapid growth in our country, the food consumption will rise in an unprecedented fashion since we are over a billion people. The food basket will also change. We have to augment the food supply within the country,'' he said.
''As half of our workforce is dependent on agriculture and as there is enough scope to increase the productivity, there is no reason why we cannot ensure food security for the country at a minimum,'' he added.
thank you so much for making this wonderful post. i learnt a lot through it.
Joined: 17 January 2008
Hey i knw there are other factors also..like rise in commodity prices.....definitely.....But in India the most important driver of current inflation ie 11.05% is relentless rise in crude oil prices.U knw crude oil prices have increased by 37% since the budget 08-09 was presented on feb 29,2008.This is what our Finance minister of India said in one of his statements.... let me correct myself...crude oil is the pure cause for current inflation...i mean to say itz the specific driver...
Joined: 17 January 2008
Only and only crude oil is the ultimate cause...
Here is the proof...
Dont we need diesel for irrigation purposes,...& to run machinery,tractors et al...& for transportation purposes.....
I still stick to my theory of it being caused by the ecnomic slow down, which has caused oil prices to rise. Inflation is just a sign of this happening. As i said earlier it happens every 8 years or so and can't be changed. And we do need it, but it is not the ultimate cause to inflation. On the June 27th we will find out if we are in a Global Recession or not!
sorry that was just a random fact.
I appreciate the theory but I dont wanna stick to random facts..
Joined: 27 May 2008
Joined: 05 October 2007
Joined: 25 January 2006
But raising the interest rates by RBI will have negative impact on the stock market
Joined: 25 January 2006
RBI hikes key rates, loans to be dearer
PTI | June 24, 2008 | 21:42 IST
Challenged by unrelenting inflationary pressures, Reserve Bank on Tuesday announced stringent measures of hiking mandatory cash reserve of the banks and its short-term lending rate to them to suck up an estimated Rs 20,000 crore -- a move that could make loans dearer for housing, car and personal expenses as also to the industry.
The announcement of hiking cash reserve ratio by 50 basis points and the short-term lending (repo) rate by a similar margin comes close on the heels of RBI Governor Y V Reddy discussing with Prime Minister Manmohan Singh and Finance Minister P Chidambaram the prevailing inflation scenario.
Reflecting the Finance Ministry's view that monetary policy would be the first line of defence against inflation that has surged to a 13-year high of 11.05 per cent, the RBI after intense consultation today pronounced the new measures, part of which would be effected in installments.
In a precursor to raising the CRR from 8.25 per cent to 8.75 per cent in two installments beginning July 5 and the repo rate from 8.0 per cent to 8.5 per cent with immediate effect, Reddy had said on Monday that the apex bank would do every thing to ease the inflationary pressures.
Expressing concern over rising inflation, RBI said, "Besides oil prices there are some underlying inflationary pressures impacting inflation in India."
The Reserve Bank said the move is "somewhat painful" but timely contraction of money supply has to be viewed in the context of new reality of high and volatile energy prices, which is not a temporary phenomenon any longer.
Justifying the move, the central bank said, "It is important to ensure that generalised instability does not develop and erodes the hard earned gains in terms of both outcomes and positive sentiments on India's growth momentum."
RBI's decision will have an impact on interest rates on various loans as is evident from bankers' reactions. Commenting on the impact of RBI's step, PNB Chairman K C Chakrabarty said prime lending rate could go up by 50 basis points. "All the loans linked to PLR like consumer loans, home loans, personal loans are bound to go up. At the same time, deposit rates would also be increased."
HDFC Managing Director Keki Mistry said," if the cost of funding goes up, we will pass on costs to our borrowers."
However, IBA Chairman MBN Rao said banks would wait for sometime before increasing home loans. According to United Bank CMD P K Gupta, banks may have to go in for a hike in interest rates even before the monetary policy, scheduled for next month. However, the quantum of increase will be decided after assessing the situation and the need of the individual bank.
UCO Bank CMD S K Goel said it does not mean increase in rates across the board. "We can adjust our short-term loans by half a per cent."
According to Indian Bank Chairman M S Sundara Rajan, "We have to look at the PLR next. The bank is likely to take a decision on first week of July. Accordingly, deposit rates would also be hiked."
Industry chambers fear RBI's step may also harm India's economic growth, particularly manufacturing sector. Ficci said the move would affect the manufacturing sector, which is already facing slackening due to high interest rates. This would also affect overall rate of growth of the economy.
Joined: 25 January 2006
While the inflation in the economy is a product of food scarcity and oil price hike, the government is seeking a solution with interest hike, that will reduce demand for houses and cars in about 2-3 years time. It will also increase the cost of lending to agriculturists who may not get the money for harvesting in this season having more impact on agriculture and more scarcity of food. It will aslo weaken the already dull stock market further with banking, real estate and auto industries being hit hard. Auto industry is gonna hit with oil inflation and also higher interest for finance. Why did i buy stocks of tata motors .... well i am not worried.... they will come up some time.
I felt the government shall first look to cut the taxes on the oil products reducing the price of perol and gas. Shift most of the vehicles to CNG rather than petrol. Look how we can improve the productivity in agriculture and give some incentive to the manufacturing industry who has gone into so many expansions in recent years. If the government does nt give this industries some hand at present its no longer we will see them in red and unemployment on increase
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