Category: Fiscal & Monetary Policies

Now that Modi is having the last laugh, here’s the list of Taleb’s aphorisms that he needs to dish out to the pseudo intellectuals and the snake oil salesmen who argued that his demonetization policy move would spell death-knell for him in electoral politics:

  1. People feel totally lost (& deep anxiety) finding out that someone they held for stupid is actually more intelligent than they are.
  2. Risk takers never complain. They do.
  3. The ultimate freedom lies in not having to explain “why” you did something.
  4. Nit-picking is the unmistakable mark of cluelessness.
  5. Never rid anyone of an illusion unless you can replace it in his mind with Continue reading

Who could have seen this coming? Has Argentina turned defaulting into an art-form ?blog

So the Argentina’s second default this century is finally done. Referring to Bloomberg, by defaulting today, Argentina may trigger bondholders claims of as much as $29 billion — equal to all its foreign-currency reserves. Just remember that the last 2 days have seen ‘smart money’ buy Argentine bonds and stocks to all-time record highs.

Some more information from Bloomberg :

If the overdue interest on Argentina’s dollar-denominated securities due 2033 isn’t paid by July 30, provisions in bond indentures known as cross-default clauses would allow the nation’s other debt holders to also demand their money back immediately. The amount corresponds to Argentina’s debt issued in foreign currencies and governed by international laws. Continue reading

From the last Monetary policy RBI has started publishing Post Policy Conference Call with Researchers and Analysts providing transparency.BTXtODVCQAALUaw

There are a lot of questions on the interest rates including MSF, LAF and OMOs.

You can read the full edited script on RBI Website

With reference to the above lets focus on The “term structure” of interest rates refers to the relationship between bonds of different terms. When interest rates of bonds are plotted against their terms, this is called the “yield curve”. Economists and investors believe that the shape of the yield curve reflects the market’s future expectation for interest rates and the conditions for monetary policy.

Usually, longer term interest rates are higher than shorter term interest rates. This is called a “normal yield curve” and is thought to reflect the higher “inflation-risk premium” that investors demand for longer term bonds. Continue reading

Inflation indexed bonds, a financial instrument which can act as a hedge against inflation by the RBI.,lets go in detail.Google

Before I describe their pros and cons Let us know what are they – They are the enhanced version of Capital Indexed bonds issued in 1997 by RBI. Capital indexed bonds provided inflation protection only for the principal while inflation indexed bonds provide inflation protection for interest payments as well. Theoretically, inflation indexed bonds could indicate the willingness of the government to maintain optimal Inflation numbers.

After the initial auction, inflation indexed bonds are traded in the secondary markets. A normal government security bond carries an inflation risk which the inflation indexed bonds are free from. So the difference between the rates of nominal rate of return from a normal government security bond would denote the inflation expectations of the market. Monetary policy makers can take cue from these market expectations to control the inflation rates.  Continue reading

It was less than four weeks ago that the Reserve Bank of India, under new head Raghuram Rajan, stunned the world on September 20 when it 813530announced that it would both hike its repo and cash reserve rates in an inflation fighting step, while lowering its marginal standing facility rate by 75 bps to 9.5% in order to boost banking sector liquidity, hence “bipolar policy” of the kind most recently seen in Europe. Moments ago, the RBI once again showed that when faced with the option of consumer pain, i.e. runaway inflation, and preserving a banking status quo, i.e. liquidity, the central bank will always choose the latter, when in a surprising move the RBI cut its Marginal Standing Facility rate by further 50 basis points, from 9.5% to 9.0%.  Continue reading

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