Letters

Letters to the Editor dated June 17, 2022

Updated on: Jun 17, 2022

Taming inflation

Apropos ‘RBI not behind the curve; tolerance of high inflation was a necessity: Das’ (June 17), notwithstanding RBI Governor Shaktikanta Das stoutly defending its policy actions by claiming that shifting focus to inflation management earlier would have had “disastrous” consequences, its extant 'economic health' still continues to be under severe 'stress' owing to the huge mismatch in 'demand-supply'.

As regards Das insisting that an exit from the easy liquidity conditions will be smooth and there will be a 'soft landing', it may remain a wishful thinking amid the prevalence of the highly turbulent economic weather, the world over.

Brent crude is currently ruling around $120 per barrel and the Russian invasion of Ukraine continues to have a devastating impact with each passing day.

More importantly, the sanctions imposed against Russia are also proving to be highly detrimental to the Indian economy.

Vinayak G

New Delhi

Don’t derail growth

The decision of the US Federal Reserve to hike the Federal Funds Rate by 75 basis points, the steepest in the last three decades, to rein in inflationary pressures in its economy, has triggered a wave of panic in global financial markets beside derailing the prospects of global economic growth.

As far as India is concerned, the aggressive monetary stance of the US Federal Reserve will further push the RBI to effect more hikes in the interest rates which in all likelihood will dampen the consumption demand and make the road to economy recovery more arduous.

While monetary tightening measures are proven to be an effective tool in taming surging inflation, care must be taken to ensure it cannot negatively impact growth. With inflationary pressures getting exacerbated by global supply chain disruptions owing to ongoing military confrontation between Russia and Ukraine and the resultant surge in commodity prices, central banks have to move beyond the means of resorting to interest rate hikes.

M Jeyaram

Sholavandan (TN)

Recession fears

This refers to the editorial ‘Staring down the barrel’(June 17. Global central banks are engaging in a fierce battle to fight the inflation monster. The US Federal Reserve has hiked the policy rate by 75 bps, while the European Central Bank has summoned an emergency meeting and will likely increase rates next month.

But the Fed's outsized rate hike just when the economy is slowing are feared to be a recipe for a recession, while several forecasts are of the world's largest economy slipping into a recession in FY23. The Fed’s rate guidance suggests the July hike could be either 75 bps or 50 bps, which is a significant departure from its norm of 25 bps increments - indicating Wednesday's hike was the Fed’s way of making up for lost ground.

This is exactly what the Reserve Bank of India wanted to avoid and acted just in time raising rates last month. But the larger issue is how long the tightening cycle will last. Worryingly, the Fed expects its policy rate to be anchored at 3.5 per cent by 2022, a full 1.5 percentage points higher than its March estimates. While the RBI gave no such clarity, interest rates shouldn’t be too steep and avoid stifling growth recovery.

N Sadhasiva Reddy

Bengaluru

More pain for investors

The more-than-expected US Fed rate hike of 75 basis points has spooked the market and the inevitable bloodbath with investors lost nearly ₹16-lakh crore is going to scare off many new investors. What is worse is that more such hikes are expected and so there is more pain in store for the investors.

Smart investors know how to ride the market ups and downs. Panic selling is bound to take the market lower.

Those waiting in the queue with their IPOs would be better off deferring them.

Those who have applied for and been allotted LIC shares must be in a real quandary.

Bulls and bears make money but it is the pigs that get slaughtered every time when something like this happens.

Anthony Henriques

Mumbai

Published on June 17, 2022
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