Subir Gokarn: Questions of interest
A number of factors can contribute to mitigating the inflationary pressure as well as balance of payments concerns.
My last column (Macro Manoeuvrings, June 5) recommended that the Reserve Bank of India (RBI) not raise interest rates in response to the stock market and exchange rate turbulence. Of course, three days later, rates were raised, in step with the actions of central banks around the world. The US Federal Reserve is expected to raise rates in end-June and the RBI is expected to raise its benchmark rates again in its quarterly announcement in end-July.
Going beyond the immediate to a somewhat longer-term view, it is clear that the global economy is rapidly entering an environment that has not been seen for over two decades. Whether the lessons learnt during that period are entirely relevant or not is, of course, a debatable proposition. Some things never change, of course, but the world economy is a very different animal from what it was at the time of the second oil shock in the late 1970s and early 1980s.