Open mouth threatens.

Actions of the US Federal Reserve resemble those of developing countries. "Despite ample evidence to the contrary starting almost a year ago, the Fed stuck to its 'transitory' characterization of inflation until the end of November," wrote Mohamed A El-Erian. In some developing countries the central bank tends to stick to low interest rate until inflation becomes entrenched and then they are in a dilemma on whether to risk a recession in trying to control it. Last week, the US Fed increased its Funds rate by 25 basis points, and projected six more increases this year, CNBC. Then, on 22 March Fed Chair Jerome Powell said that the Fed is ready to move "more aggressively" if required, meaning raising rate by 50 basis points, BS. The Fed has lost a lot of credibility by not reacting sooner, yahoo. Markets have ignored the Fed and have moved higher. Yesterday, the Dow Jones rose by 1.02%, the Nasdaq by 1.93% and the S&P by 1.43%, CNN. "The idea was to ease off the accelerator and start tapping the brakes softly instead of having to do what the market is asking for now and Powell acknowledged on Monday, having to hit the brakes harder at this late stage," El-Erian. The Reserve Bank of India (RBI) seems to be following the same track. It has kept interest rate stuck at 4% and maintained an accommodative stance for 24 months since March 2020, TOI. Even as retail inflation rose to an 8-month high at 6.07% in February 2022, ET, it has resorted to hot air, known as 'Open Mouth Operations' (OMO),  to control the market. OMO is when the central bank broadcasts what it "believes interest rates and inflation should be in the short- and medium-term" and "the markets react, which can lead to an adjustment in interest rates without the need for central bank action," Investopedia. Despite evidence to the contrary, the RBI "does not foresee inflation to breach its upper tolerance limit of 6% and expects it to moderate going forward, governor Shaktikanta Das said. Petrol and diesel prices have been hiked by Rs 0.80 for the third time this week. "Both petrol and diesel prices have so far hiked by Rs 2.40 per liter this week," BS. Soaring transport costs will surely push cost of all goods and services higher. "We will ensure abundant liquidity to meet the requirements of the productive sectors of the economy," said Das. "RBI resisted all temptations of moving away from the accommodative stance to support growth. We foresaw inflation moderating going forward." He is not saying that prices will fall but that they will increase by a lower percentage over the soaring prices today. As a result, "As always, poor workers in the informal sector will be hit hardest," and "The biggest gainer will be the country's biggest bond-issuer: The government," wrote Pramit Bhattacharya. The RBI "will continue to focus on smooth completion of the government borrowing programme, market participants also have a stake in orderly evolution of the yield curve. It is expected that market participants will engage responsibly and contribute to cooperative outcomes that benefit all," threatens OMO. In other words, "Bond dealers better swallow losses, or else." Will open mouth swallow the economy? We will see.