BOM Gone As Far As It Could

With the key repo rate given that savings haven't improved after two university buddies messed up our macroeconomic fundamentals. The bank is also making FX credit lines available essentially because cry-babies have stopped using swaps.

Listen to the post-MPC press conference. Or have a look at the slides used.

Coordination Allowed BOM To Increase Repo By Only 0.5%

With the Treasury that is. See pump prices go down by a couple of rupees tonight and this enabled the MPC to raise its policy rate by only half a percent to 5.25% to help set monetary conditions to a level which is not consistent with double-digit inflation by the end of 2011.

So it looks as if Pravind Jugnauth has understood that his last budget was inflationary. And he is not the only one to have made an about-face on the price-stability issue. Indeed, gran frer gran malelve appears to have also recently discovered the joys of low inflation.

Repo Rate Raised By 50 BPS To Prevent Second-round Effects

As widely expected, well, save the JEC. BOM's primary objective being price stability it had little choice to raise the repo rate to 5.25% as inflation had been on the rise after Pravind Jugnauth's budget. Besides monetary policy operates with a lag and inflation is like...radioactivity.

MPC Leaves Repo Rate Unchanged

Although it acknowledged that growth for 2010 has been revised downward to 4.1% it is worried about inflation picking up and rising to 4% over the next few quarters.

That makes a lot of sense because price stability should have priority over growth especially when the latter is of the depreciated rupee kind. We can also compare the performance of the last two governments and Sithanen's record vs. that of Singapore for support of an inflation target.