Who will pop the bubble? Not the RBI.

"The Monetary Policy Committee (MPC) has decided to keep the repo rate steady and unchanged i.e. they are going to hold firm at 4 percent, Shaktikanta Das, Governor of Reserve Bank of India (RBI) stated," Economic Times (ET). This was done to help growth by keeping the cost of borrowing lower than the rate of retail inflation, which increased by 6.26% in June, The Indian Express (TIE). "MPC voted 5:1 in favor of maintaining accommodative stance to sustain growth and aid the recovery process." "Consumer sentiment in India stayed put near record low in July, weighed down by lower income and higher cost of living, according to a RBI survey," ET. "Households' median inflation perception for the current period remained elevated in double digits at 10.3%. Inflation expectation for three months rose by 50 basis points to 11.3%. Median inflation expectations for one-year ahead rose 60 basis points to 11.5%." The RBI raised its consumer price index (CPI) inflation forecast from 5.1% to 5.7% in financial year 2021-22, Business Today (BT). Thus, households' expectation is double that of RBI estimation. Das said, "CPI inflation is projected at 5.7% during 2021-22 -- this consists of 5.9% in Q2 (1 July-30 September), 5.3% in Q3 and 5.8% in Q4 of 2021-22 with risks broadly balanced. CPI inflation for the first quarter (1 April-30 June) of 2022-23 is projected at 5.1%." "Inflation is a decrease in the purchasing power of currency due to a rise in prices across the economy," Investopedia. "A predictable response to declining purchasing power is to buy now, rather than later. "Cash will only lose value, so it is better to get your shopping out of the way and stock up on things that probably won't lose value." Not when people are unsure of future income. "The sentiments on overall spending remained unchanged as higher spending on essential items were offset by a drop in non-essential expenditure with consumers expecting further contraction in discretionary expenditure in the year ahead," the RBI said. "In the last 15 months since the pandemic struck, consumer price index-based inflation has been above 6% in 10 months, 5-6% in two months and 4-5% in three months," so inflation is not really transitory as the RBI would have us believe, wrote a sceptical Madan Sabnavis. The RBI says growth will be 9.5% in 2021-22 so interest rate must be kept low to stimulate growth, but the chief economic adviser predicted growth rate at 11.5% in 2021 in the Economic Survey presented in January, Fortune India. So, why worry? The RBI has been buying government bonds, under its government securities acquisition programme (G-SAP), to inject more liquidity into banks in an effort to encourage lending. But instead of lending the money, banks are parking excess funds in the RBI's reverse repo window at 3.35% interest. This leads to financial losses for banks. "For example, RBI announced the purchase of the 5.63% 2026 paper which has a yield of 5.76%. Giving this up for reinvesting at 3.35% is puzzling." "Over the last two years, the bond market will have absorbed close to Rs 40 lakh crore (Rs 40 trillion) of gross bond supply if one takes into account both state and central government bonds. In comparison, RBI has so far announced around Rs 2 lakh crore of bond purchases. That means interest rates will not come down anytime soon," ET. That is the main problem. Almost everyone in authority in India has an almost religious belief in low interest rates, never mind inflation or the value of the rupee. Although "Das also unequivocally expressed the central bank's resolve to aid economic recovery", "the fine print of the MPC resolution does underline worrying trends, including a stagflation (low growth and high inflation) threat for the economy," wrote Roshan Kishore. Both bonds and stocks are in bubble territory, according to investor Jim Rogers. "The supply of debt is gigantic and inflation is coming," he said, and interest rates will have to go up. Indian markets are in the stratospheric levels, moneycontrol. If the bubble pops, the rupee will drop and inflation will zoom. The RBI does not want to pop the bubble. Perhaps, it's scared of the government. Better let foreigners do the popping.