This is SO messed up. Our system has turned what should be stabilizing negative feedback on its head. The US buys too much crap from China. It should cause our currency to weaken and interest rates to rise, negative feedback to slow demand. Instead, thanks to central bank tinkering, the dollars get swapped for Yuan in China, flooding their money supply, and the dollars get returned to the US, sending interest rates the wrong way.
And now, the emerging markets bubble has trapped all the other central banks of the world. There is evidently little they feel they can do. If they raise rates, it strengthens their currency and encourages more capital inflows. But they've already got too much speculative capital as it is. And they can't lower rates. What the hell do they do?
bloomberg.com
Reddy, who held the central bank's benchmark interest rates on April 24, said higher rates ``increase the possibility of further capital flows'' and complicates the conduct of monetary policy, a view echoed in Moody's report today.
`Deeply Complicated'
``Macroeconomic policy making has lately been deeply complicated by strong capital account inflows that far exceed its current account deficit,'' Lindow said. ``The flows have put upward pressure on the rupee.''
India's rupee advanced for a fifth day, extending a rally to the highest in almost nine years, as global funds more than tripled stock purchases this month. The rupee rose as much as 0.5 percent to 40.725 against the dollar, the highest since May 22, 1998, before closing at 40.93 at 5 p.m. in Mumbai, according to data compiled by Bloomberg. |
