You recall Mr Gerald Lincoln's advice to Government that “L’inflation ne doit pas devenir une obsession.” How could you expect our BoM boy to spurn such precious advice from our corporate friend?
Indeed, BoM seems to believe that by raising interest rates by a ridiculous 15 basis points and thus letting prices bubble for quite a while, they will not constrain growth ; nor will they discourage investment and employment and for sure, this small hike in interest rates will not be much of a burden for our debt-laden corporate friends .
They and the chatwa economists were queuing up to toe the line that “ le taux d’inflation est largement dû aux facteurs externes ” -putting everything now on the back of the Ukraine war. But core inflation, CORE 2 , which is non-food and non-fuel inflation, remained elevated at 5.8% compared to 5.7% in January 2022 and 4.5% in February 2021.
The external factors, especially the oil’s impact, are being dwarfed by their policy of the deliberate depreciation of the rupee which has fuelled inflation reaching 9%, year-on-year, in Feb 2022. BoM is currently allowing the rupee to depreciate by about 1/2 percentage point monthly. As in the previous 3 years, BoM is likely to continue with rupee depreciation until June 22, to again distribute exchange valuation gains to Govt for spending.
From end Dec 2018 to end Feb 2022, the rupee depreciated by 27% against the currencies of our major trading partners. The rupee has lost more than a quarter of its value over the last 3 years! The BoM allows the rupee to depreciate especially in the first half of each year so as to accumulate valuation gains on its forex reserves, which are added to its Special Reserve Fund in June, at the end of its financial year, to be distributed to Govt for budget spending.
BoM has currently borrowed about USD 1 bn to support the current level of forex reserves, but is not doing enough to prevent rupee depreciation. A shortage of foreign currency continues to prevail. Govt should apply urgent and serious policy measures to stabilize the rupee, which has already lost a quarter of its value over the last 3 years.
BoM should stop the heavy monetary financing of the budget deficit, which is aggravating pressures on depreciation and inflation. The increase in the policy interest rate, i.e., the Key Repo Rate, by 15 basis points to 2% is not sufficient to tackle inflation. The Minister of Finance announced a plan for a “assainissement des finances publiques” recently. Where is it? It is time he stops impoverishing the population!
