One does not like writing such posts but just can’t help it. There is only so much one can ignore.
The positive spinning of news on Indian central bank continues to be a big issue. Despite central banking exposed widely across the world, we are continuously made to believe of godly powers of people at helm of Indian central bank.
Came across this recent piece which again tries to spin a story. It argues how the new chief has had the best start this century as far as bond markets are concerned.
Urjit Patel is enjoying the best bond-market start for a new Reserve Bank of India governor this century.
Benchmark 10-year yields have plunged 56 basis points since June 30, the most in any quarter since 1999 during which a central bank chief was appointed, data compiled by Bloomberg show. Global funds are returning to rupee debt after a two-quarter hiatus as slowing inflation and an improving current-account burnish India’s appeal amid reduced odds of a U.S. Federal Reserve interest-rate increase Wednesday.
About half of the 113-billion rupee ($1.7 billion) inflow that Indian bonds have garnered this quarter followed Patel’s promotion. The 52-year old former RBI deputy governor had established his inflation-fighting credentials by spearheading a report that led the government to adopt the nation’s first formal consumer-price target last month.
Century? Are we in the 2080s or 2090s? This is still 2016 and it is just the 4th appointment since 2000. Is it appropriate to use century here?
Moreover, how is it that strong inflation fighting credentials have led to lower bond yields? Ideally yields should be going up or at best be stagnant. True, inflation has inched down with global factors especially oil prices playing a crucial role. But this has been an ongoing phenomenon for a while and little to do with the appointment per se.
So, indeed if inflation credentials have been earned as the article suggests, markets should have been more weary of the hawkish/owlish tone. But this is hardly the case. Infact, for all you know markets might be ignoring all this credential nonsense.
What if yields had actually gone up? The stories would then be spun as inflation credentials have led to yields going up!! It is that easy. Infact, the new appointee would have preferred higher interest rates just to earn that so called credibility.
“Foreign investors were concerned about a weakening in the inflation-targeting framework but with the announcement of Dr. Urjit Patel, those concerns have diminished,” said Rajeev De Mello, who oversees about $10 billion as Singapore-based head of Asian fixed income at Schroder Investment Management Ltd. “Inflows into emerging markets were very strong post Brexit.”
Each time someone is appointed at Indian central bank there are concerns that inflation fighting will take a back seat. Despite this noise being proved wrong each time, these expectations continue to remain. One wonders where such ideas come from really. Anyone who joins a central bank in most parts of the world knows role is inflation management. But somehow media and experts think otherwise when it comes to appointments in India, only to go wrong each time.
Capital inflows too are being celebrated despite evidence from other countries showing they lead to more problems. Especially inflows which come because of some shock like Brexit or due to limited options elsewhere..
One could actually point to several articles being written every day. The whole purpose is to write something just to please those at helm of Indian central bank. You keep going back to Prof Simon Wren Lewis post saying There is macro and there is media macro.
Though here one must give credit to RBI. It has been really quiet recently. This is a big relief from what we were witnessing just a few days ago. So, as a result we are atleast not seeing two to tango. It is just a solo performance much of which is out of sync.
It wasn’t this bad earlier as much of media doubted and questioned the central bank. It was ahead of its time as global media is only beginning to question their central bank policies now. We have perhaps regressed in this domain (many say in most domains..).