Mann ki Baat

MANASI PHADKE | Updated on March 09, 2018


When the Fed and the RBI chat

1 5th December, 2015. Call is placed from the Fed to RBI.

JY (jovial): Hi, there, Raghu! How’s everything?

RR (sourly): How do you think everything would be? We’re sweating here, Janet. All because the growth numbers are so hot in the US. You put in a rate hike tomorrow and the Sensex will swing. And then the currency markets. And now I need to figure out the equilibrium exchange rate at which intervention needs to begin. Where should I intervene? At 68? At 69? And are FOREX reserves of $350 billion enough? Has the market truly factored in all the information? Oh God, aren’t you supposed to be a dove?

JY (smiling): Well, you know what it means to be an economist, Raghu. The best of doves develop claws when data tells you job growth and consumer sentiment is strong. Just like you said so intelligently, my dear. My name is Janet Yellen, and I do what I have to do.

RR (dourly): At least keep it at 25 bps. Don’t you overdo it. What with the Yelling in the Parliament and Yellen in the Fed, my job has really become Yecarious, errr, precarious.

JY (laughing now): You never really know, do you? Keep your fingers crossed and those dollar reserves ready. You are going to need them!

17th December, 2015. Call is placed from RBI to the Fed.

RR (jovial): Hi there, Janet! How’s everything?

JY (sourly): How do you think everything would be, Raghu? Everything’s gone off smooth as silk. These analysts are all talking in glorious terms about the Fed managing market expectations correctly. But I am so bugged, I can’t tell you. Managing market expectations means that once the Fed puts in the hike, it does not create a tsunami, like the one Ben caused with the taper tantrum. But, no matter how much you manage expectations, Asian stocks and currencies have to fall. Period. That’s International Macroeconomics 101. But almost all Asian markets have risen a bit. Aaaaargh! Even China. Currencies are holding up so well, it’s positively embarrassing. We are the dollar, dammit. Some respect is due, bro.

RR (smiling): Well, you know what it means to be an economist, Janet. The best of claws won’t help in making a killing on markets if data suggests there is better sentiment elsewhere. So, you did what you did and I’ll do what I have to do now, which is incidentally, not much!

JY (dourly): Look, Raghu, at least don’t let the Rupee appreciate too much. Keep the Rupee at about 66.5, okay? Don’t you overdo it. I am taking such an image beating here.

RR (laughing now): You never really know, do you, Janet? But don’t worry. We are not in a mood to get into steep appreciation right now.

JY (thoughtfully): What I can’t fathom, Raghu, is how investors are staying with India. Your basic tax reforms are pending. Your Parliament won’t pass GST citing some of the craziest things I ever heard. And if your MPs don’t learn to de-link the intolerance debate from the GST, you’ll find some very intolerant movements on the markets. With such terrible political vibes and the Fed hike, I was sure that FIIs would move away from India. How did you manage to retain them?

RR: Well Janet, markets are subject to push and pull forces. Financial Economics 101.We may have some of the most misbehaved Parliamentarians here creating a push. But you have Donald. Our Trump card!

The writer is a Pune-based economist. She blogs at manasiecon.wordpress.com

Published on December 20, 2015

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