Thursday, May 03, 2007

Plunge Protection Team for Indian markets ?

Contrast the underlying philosophy behind Government’s fiscal policy and RBI’s monetary measures, the clock is stuck at 10 past 10. Finance ministry wants the reforms to continue on the liberalization plank. Liberal SEZ, more FDI, lifting of investment caps, more resources freed towards industrial progress. All these boost forex inflow, enthuse the stock markets that have soared to dizzying levels. With SEBI also considering letting in big ticket investors like Hedge Funds have a direct exposure to Indian equities, barring short term blips, the long term India story is in tact and the buoyancy is likely to persist.

Not all are happy about it. The RBI and its Governor Dr.Y.V.Reddy are a worried lot for one. So far RBI has managed recessionary phases and forex crisis of different kinds over the decades. They are now facing a new kind of problem they’ve often not met with before – Forex reserves are building up at a faster clip than they can count, much less manage. With $ 203 billion as on April 20, 2007 as per latest available RBI statement, they’d better figure a way out to deal with it soon.

The normally intrepid Guv is close to pressing the panic button or is near as he can get, as he continues to let the Rupee appreciate against the US dollar, much to the chagrin of businesses with huge $ billings like IT, Healthcare and Telecom. Though he has also left all key rates unchanged and announced steps that would pave the way for lower interest rates on home loans in its annual credit policy - aimed at sustaining growth without fuelling inflation, it’s totally clueless where it comes to dealing with the mounting forex reserves.

Financial assets if badly managed can often spell disaster for any economy. Compare the 9.5% returns earned by GIC of Singapore as against India’s paltry 3.5%. Isn’t it time that we look at other economies that are handling the situation efficiently and adopt the best practices that worked well with them ?

I am not a fan of regulatory overkill. But if there’s a certainty of idea vaccum at the top, I’d better tweak my belief system than to let my tiny net worth erode. How about a working group on financial markets on the lines of Plunge Protection Team – may not be a panacea, but could well be a dry run to test internal efficacies in an emergency.
What do you think ?

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Blogger Arun said...

This comment has been removed by the author.

1:34 AM  
Blogger Arun said...

GIC is run like a proper fund, with top managers paid millions of dollars. Unlikely this will happen in an Indian govt. fund company.

1:35 AM  
Blogger Krish said...


RBI is a champion where it comes to managing a crunch. They are in uncharted waters now since they are facing a situation of plenty for a change.

Let's be realistic. Dr.Y.V.Reddy and those who preceded him were great money managers even as they were paid the regulation wages.

With the offshoring capability that we have, the US Fed and EU might as well offshore Reserves Management to RBI, who knows :)

3:04 AM  

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