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Tuesday, December 13, 2016
A rate hike in USA will send the rupee down and that will be feeding inflation
Lobbying Moves into High Gear Against Fed Rate Hike
Posted Dec 12, 2016 by Martin Armstrong
The lobbying is off and running is super-high gear to stop the Fed from raising rates once again. Governments all over the world have a very myopic view and focused only on the next quarter, or the next election. The Reserve Bank of India also fears that the US Fed’s impending interest rise would affect the external value of the rupee. Again the IMF behind the curtain is on its needs. Any depreciation of the rupee as a result of capital outflows would only worsen the balance of payments for India and expose the insane policies of Modi who did not even consult the RBI before demonetizing the currency.
Anyone with half a brain in economics knows that the worst thin you can do to create a depression is cause the velocity of money to decline. If people hoard and do not spend, the economy implodes. Modi is trying to end the cash economy, but he has ensured unemployment will now soar because small businesses cannot pay their people.Expect at least another 400,000 people to lose their jobs and people are forced to use rice as money.
Additionally, a rate hike in USA will send the rupee down and that will be feeding inflation due to rise in prices of imported commodities. Inflationary expectations are real keeping food prices high posing a threat to domestic price stability and external value of rupee. The RBI declined to lower rates looking at the prospects that the USA may raise rates so high rates are necessary to try to stem the outflow of capital.