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英国论文网:British and Dutch GDP:The spread of the cri(38)


RBI should refrain from foreign exchange intervention, which at the moment
sends contradictory signals because it sucks out liquidity at the very time that the
RBI is pumping enormous amounts of liquidity back into the economy. Far better
to use the RBI’s foreign exchange reserves to meet the foreign funding requirements
of domestic financial institutions rather than to defend some level for the
rupee.
On monetary policy, the RBI has been doing the juggling act of easing interest
rates and injecting rupee liquidity, on the one hand, while trying to encourage
capital inflows and discourage outflows through a variety of measures such as raising
interest rates on foreign currency deposits. Make no mistake that there is an
inherent tension, even plain contradiction, between these actions, which the RBI
has been able to avoid because residents, unlike foreign investors, are not fleeing
rupee assets. The risk of aggressive easing is that it might trigger the move away
54 The First Global Financial Crisis of the 21st Century Part II
from rupee holdings, at a time when confidence in the rupee is so shaky, when
current and prospective depreciation would offset the favourable effects on inflation
from declines in commodity prices, and when credit is still growing at a
whopping 30%. It is worth noting that while the repo rate has been cut to 8%, the
call rate — which reflects market conditions — is at 6%, below CPI inflation,
resulting in negative real interest rates.
A loss of confidence in the rupee is an outcome devoutly to be avoided. At this
juncture, restoring confidence in individual financial institutions and the financial
system is key to achieving that objective and to avoid unreasonably burdening monetary
policy.
‘Brand India’ has come to connote not just rapid growth but a reasonable ability
of policymakers to respond to challenges. Of course, this response will be
assessed by outcomes. But critical to this assessment will be whether processes for
arriving at outcomes are effective, and specifically, whether all concerned institutions
play their rightful roles and maintain their credibility. ‘Brand India’ must
pass all these tests.
Editors’ note: This first appeared in the Indian newspaper Business Standard.
Preserving financial sector confidence, not monetary easing, is key 55

27 October 2008
The current financial crisis will probably lead to an unnecessarily deep recession.
This column suggests that European central banks, misguided by outdated econometric
models, should have cut rates faster and deeper in a coordinated fashion.
They should now scrap these models and agree on a large, coordinated cut of
2 percentage points.
When future economic historians look back to trace the triggers for the October



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