Guessing the future.

"Indian government bond yields declined in early deals yesterday as investors, led by state-run banks, stepped up purchases after a three-session selloff." "These lenders bought over 125 billion rupees ($1.46 billion) of bonds on a net basis in the last two sessions." Mint. These banks may be owned by the government but the money is ours. "The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on 6 June slashed repo rate by 50 basis points (bps) to 5.5%, marking a third consecutive rate cut this year. ET. About a month ago, "The US Federal Reserve held its key interest rate unchanged in a range between 4.25%-4.5%, where it has been since December." CNBC. The Fed's wait-and-watch response was due to the "uncertainty about how President Donald Trump's tariffs will raise inflation and/or slow growth," wrote Mythili Bhusnurmath. The RBI's Governor Sanjay Malhotra argued that "the growth needs support, hence the need to front-load action." Does it? "On the contrary, not only has growth done better than expected, with fourth quarter (January- March 2025) growth at 7.4%, better than RBI's December projection of 7.2%, but the growth projection for 2025-26 has also been left unchanged at 6.5%." Not content with its 'bazooka', "In addition to the rate cut, the RBI has lowered the Cash Reserve Ratio (CRR) by 100 bps to 3%, which will be implemented in four tranches starting from the fortnight beginning 6 September 2025." BT. This move will inject Rs 2.5 trillion into the banking system. To utilize this flood of cash banks will lower their lending rates which will encourage borrowing which will stimulate new investments and create jobs. A virtuous cycle. However, "Private consumption which accounts for over half the economy remains soft." "In the fourth quarter of 2024-25, despite headline GDP growth of 7.4%, it grew just 6%," wrote Srinath Sridharan. If demand for loans remains weak banks will lower interest it pays on deposits, forcing savers to look for alternative investments to augment income. India's share markets are already red hot. While Indian cement company stocks sell at 33-34 times expected earnings, "China's Anhui Conch Cement Co trades below a price-to-earnings multiple of 10 in Hong Kong, wrote Andy Mukherjee. Those who invest in stocks at these levels could suffer huge losses if there is a meaningful correction. People may be ignored but, "Analysts quoted in a Reuters report warned that the move has left the rupee vulnerable to further depreciation by eroding foreign exchange forward premiums and weakening the currency's carry trade appeal." India Today. "In general, carry trade is any strategy where an investor borrows capital at a lower interest rate to invest in assets with a potentially higher return." Investopedia. But, the US interest rate is at 4.5% while that of India's is 5.5% which gives a return of 100 bps. So what is the problem? The problem is that "US consumer prices increased less than expected in May," with the Consumer Price Index (CPI) rising by 2.4% year-on-year in May (Reuters), while India's CPI inflation was up 3.16% (Provisional) in April  (pib.gov.in), with food, which makes up nearly half of the CPI basket (mospi.gov.in) prices rising by just 1.78%. Since food prices are dependent on supply any variation in the monsoon could push prices up. Not just one bazooka, the RBI transferred a bazooka dividend of Rs 2.69 trillion to the government from profits it made in the last financial year. BS. What happens if inflation increases in both the US and India? Will foreign investors sell out leaving India investors with serious losses in both bond and stock markets? The RBI is relaxed because since the Centre owns public sector banks it will refinance any losses. TOI. But the RBI is also fully owned by the government of India. rbi.org.in. Public sector banks may be following government orders but is the RBI doing the same? Will the government rescue the RBI if it's running out of cash? Guessing the future is astrology. The US Fed hesitates, the RBI rushed in. Who's the angel in this (wiktionary)?