The mother of all money supply crises

To the surprise of many, in the fourth week of March, the call money market experienced one of the most outlandishly bizarre rallies – call rates skyrocketed to a pernicious 70% (!!!). Is this simply eccentric market behaviour, or is it simply a horrendous manifestation of certain flaws on which the Indian economy continues to roll ahead?

In the recent past, India has grossly lost its grip on its monetary situation and such an irrational exuberance only goes on to prove the same. No doubt, escalating inflationary pressures (with inflation rates hovering around 6-6.5%) as well as money being withdrawn by the corporate sector for advance tax payments (to the tune of Rs.450-500 billion) are clear reasons for visible money supply going down. But as B&E had forecasted in its previous issue, the biggest culprit to the ongoing drama is none but RBI.


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Source : IIPM Editorial, 2006

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