Between a rock and the deep blue sea.

Why do our journalists keep trying to mislead us? Are they being paid to do so? God knows that there are untold trillions of black money floating around so a friendly handshake should not be a problem. Whenever the inflation rate falls there is an outcry in the press for lower interest rates, apparently because cheaper borrowing costs are good for business. But is it that simple? True, the Wholesale Price Index came in at 2.38% in September, compared to 3.74% in August, the lowest in 59 months. Retail inflation also fell to 6.46% in September, compared to 7.73% in August. Which is good news. But we have to remember that prices have been rising at near 10% since 2008, which means that prices of consumer goods, especially food, have doubled. The press never explains that 10% of Rs 100 is Rs 10 but 6.46% of Rs 200 is nearly Rs 13. This is known as the base effect, so a lower rate does not necessarily mean good news for us. So should the RBI start lowering interest rates? The Trade Deficit jumped to $14.2 billion. Exports grew by 2.73% to $28.9 billion because of the weakness of the global economy but imports jumped 26% to $43.15 billion. Compared to $682.5 million last September gold imports rose to $3.75 billion this year. This despite high duties and restrictions on the import of gold. Already banks are reducing rates of interest paid on term deposits so if the RBI cuts rates savers will suffer even more. To hedge against inflation people will buy even more gold even if prices continue to fall. Foreign investors have been buying into Indian bonds, both government and corporate, because yields on 10-year US treasuries fell to 1.873% before settling at 2.091%, which gives a nice arbitrage opportunity for investors. The influx of dollars makes the rupee strong so the RBI has been buying dollars to keep the exchange rate stable. The dollar has risen against all major currencies so a strong rupee makes Indian exports more expensive and that maybe one reason why exports have fallen. On the other hand banks are flush with rupees and so cut interest paid to depositors which would encourage people to buy gold. To reduce the supply of money the RBI sells government bonds. This is a delicate act but the strong rupee has lulled business fellows from hedging their foreign debt. In the past too Indian companies have defaulted on foreign loans but they do not learn. Already they are sitting on a mountain of debt and they are taking on even more. Finally, real estate in India is probably more expensive than in the US so there could be an almighty crash unless demand goes up. Who would want to be in RBI Governor, Raghuram Rajan's shoes?