Ultimately the institutional investors are making a retreat from Indian stock Exchange on account of inflation and interest rates’ rise. The wide fluctuations in the stock exchange indexes are invariably dependent on the European Stock Exchanges and the political developments within the country or sometimes on the behavior of monsoon. Stock markets dipped to 7-month lows on Tuesday (February 8) with sensex closing below 18,000 declining 261 points or 1.45% as investors sold heavily on concerns over rising inflation and interest rates. Despite the positive improvements anticipated by the Prime Minister’s Economic Advisory Council, RBI and the Planning Commission, the food inflation fails to drop below 15%.
Let us have a look at our neighbour China. China’s Central Bank, namely, The Peoples Bank of China, on Monday (February 7) raised the bench-mark one year borrowing and lending rates by 25 basis points, a step aimed at containing inflation. This step basically is meant to cool prices and tighten liquidity. As a matter of fact the Chinese government has fixed a target of 3% for consumer price index. In December 2010 it was measured at 4.6% compared to 5.1% in November, the highest in 28-months.
After the hike in benchmark rates, the one-year deposit interest rate will climb to 3% and the one-year loan interest rate will reach 6.06%. The PBOC has raised interest rates twice in 2010 to deal with rising inflation and soaring asset prices.
It is quite interesting to see both China and India fighting inflation by fixing certain targets. While Indian government is struggling hard with double digit inflation for quiet sometime now, the Chinese government has been very strict and smart not only in fixing a realistic and requisite target but also in trying to contain inflation and enable the economy to register a high level of growth rate as usual.
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