Friday, February 12, 2010

The Debts of the Lenders: India's Central Bank Faces Stark Choices in Raising Rates To Avoid Food Inflation

I first discussed India's problems with food shortages last summer here.

But here is a more recent update:

The Financial Times also reports:

Spiralling food prices have provoked debate about whether the Reserve Bank of India will be forced to raise interest rates to try to cool the economy. Already the bank has begun to exit its loose monetary policy by raising banks' reserve needs

This problems is endemic to not just India but nearly all the emerging market nations. Ministers face different challenges from their Western peers. Instead of asset deflation and shrinking/aging population pools, emerging markets in Asia, Latin America, and the Middle East are confronted with a young workforce that needs to remain steadily employed and fed. Any sort of contribution towards domestic issues is going to indirectly affect the fiscal sustainability of Western governments reliant on fund flows to maintain record borrowing deficits.
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