Fearful Symmetry sees India hurt by hawks

A month ago this chronicle was devoted always exclusively to the Union Budget. There was just enough room for fearful symmetry to indicate that it “will be difficult for the RBI to protest about inflation any longer, allowing for a reversal of the excessive late cycle hikes that got fearful symmetry’s dander up last year.” The appropriate positioning of monetary policy has been an ongoing point of contention between fearful symmetry and those whose opinions actually count – the policymakers themselves. While India’s relevant peers in Brazil and Indonesia were treading an ‘enlightened’ path in 2011, cutting pre-emptively to cushion the shock of the impending global slowdown, Governor Subbarao talked and acted tough throughout the second half of last year, despite an abrupt slowdown in interest rate sensitive activity and an increasingly constrictive financial environment at home and abroad. Brazil began an easing cycle in August 2011; Indonesia in October. India by contrast hiked rates in September and October, driving fearful symmetry to remark in the chronicle covering the latter month that the RBI was exhibiting “puritanical stubborness up to and including the potential for self harm”. The excessively tight policy imposed through this period will be washing over the economy for some time to come.

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