India may do great by accident.

In a surprise move the central bank in Brazil increased interest rates to 11.25% while Russia raised rates by a hefty 150 basis points to 9.5% despite weak growth in Brazil and recession in Russia. In India calls to reduce the repo rate are becoming more strident as inflation rates fell in October, mainly due to a high base effect. However, real policy rates are still too low and there is no evidence that low interest rates act as an incentive to investment. Even though the Reserve Bank has not formally reduced interest rates banks are reducing deposit rates paid on savings because they are flush with funds and credit uptake is weak. If returns become negative once again people will resort to buying gold as they did in the past few years. Banks have too much liquidity because the RBI has been buying dollars to build up reserves in case foreign investors suddenly take their money out, following the conclusion of bond buying by the US Federal Reserve. Banks are reluctant to lend because they are sitting on vast amounts of bad loans as companies are unable to service their debt because of falling profit margins. What everyone is forgetting to mention is that most of these fellows borrowed money thinking that they would not have to repay their loans and a lot of them have invested in real estate, hoping to make a quick buck. In an effort to control black money and increase tax collections politicians have increased circle rates so high that it is now more economic to buy real estate in the US than in India. While politicians and business fellows have been beating their breasts at the high interest rate in India Republican politicians in the US have been demanding that the Fed raises rates. So angry are the Republicans at the extremely loose monetary policy that some are demanding that the Congress should oversee the Fed. Politicians in India are also demanding that politicians should set the inflation target for the RBI to follow. Should they really do that? Inflation in India is so high because of criminal fiscal profligacy by the Congress led government which wasted trillions of rupees in handouts to bribe the ' vote bank ' and then raised taxes to astronomical levels to balance the budget. At the moment politicians are hiding their crimes behind the fig leaf of the RBI but if they set inflation targets they will have no excuse for their failures. Politicians refuse to learn from the mistake of 1937 when premature tightening, just when the US was recovering form the Great Depression, led to another recession. With the global economy in doldrums each central bank is trying to defend its own economy while politicians look to their own interests. If there is global deflation our inflation may actually save us. It is called ' Ram bharose ', or ' Ram protects '.