A humble central bank.

"Economist Nouriel Roubini said he would short US stocks through the remainder of this year, reaffirming his prediction that a 10% decline is a likely scenario." yahoo. "Roubini, known for his alarm-ringing forecasts that earned him the nickname 'Dr Doom', pointed to a slower global growth and a high inflation environment as the current threats to watch out for." He has added debts to the mix. He had warned that "high and rising private and public debt ratios, which reached 330% of GDP globally in 2022 (420% in advanced economies and over 300% in China), mark a dramatic shift from the pre-2021 period, when debt ratios were high, but debt servicing ratios were low." Hence, central banks "are caught in a 'debt trap', facing not only a dilemma - how to achieve 2% inflation without causing an economic hard landing - but a trilemma: how to achieve price stability while also avoiding a recession and a financial crisis." "The world's major central banks have converged on a 2% target. Now is not the time to question or lose sight of that goal." "Governments may put political pressure on central banks to keep interest rates low or lower than needed." But "Central banks should resolve to adopt a more humble approach," wrote Frenkel, Rajan & Weber. "The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) unanimously opted to maintain the repo rate at 6.5% for the fifth consecutive time, RBI Governor Shaktikanta Das said." ET. Despite its mandate to keep consumer price (CPI) inflation at 4%, with a rare deviation of 2% up or down (ET), the RBI has not once achieved that target since September 2019, the closest being 4.1% in January 2021 (RI). That is very humble, indeed. CPI inflation rose by 5.6% year-on-year in November from 4.9% in October (TOI), even as "India's economy expanded 7.6% in the September quarter from a year earlier as manufacturing posted strong growth and investments gathered pace." ET. The real interest rate is calculated by subtracting inflation from the nominal interest rate. Investopedia. Negative real rates transfer wealth from savers, as their savings lose value, to the rich and the government because they can borrow cheaply. After remaining negative till November 2022, real rates have been positive in 9 out of 12 months to November 2023. Forbes. Given the present repo rate at 6.5%, the real rate will reach 2.5% in the September quarter of 2024 if the RBI's projection of CPI inflation at 4% in the same quarter (Mint) actually comes true. "That is exactly why analysts are expecting RBI to begin cutting interest rates in the second half of the next fiscal," wrote Roshan Kishore. No matter what happens to the rest of the world, India is "in a unique position of being optimistic and positive about its future growth," said Finance Minister Nirmala Sitharaman. It's as if India is a hot air balloon. Hope we don't float away.