Financial Crisis of 2008

normalization cycle. Question is, where does that put India? Given the nature of the health shock in India, we've had a start-stop sort of recovery, which did poorly in the first COVID lockdown. When we had a lockdown for the second wave, the impact of the pandemic was less, economically speaking. In such an environment, the biggest source of uncertainty for the RBI is the health crisis, even though the vaccinations have improved there is greater certainty on that front. India's inflation is mostly because of higher imported prices and not so much because of what's happening domestically. That gives up a little bit more room to continue with accommodative policies but then we will start seeing modest policies coming through most likely in the next meeting. So, the RBI has already announced that it will not buy any more bonds, and I think they will start raising the Reverse Repo Rates from the next meeting in December and maybe sometime by the middle of next year, we'll have Repo Rates hikes also. But the entire Monetary Policy normalization cycle in India will be a function of India's growth performance, and not India's inflation. We've had high inflation for some time and that is not something that has led to the tightening of the policy.

Question: Manufacturing & consumption companies are facing the heat of inflation due to rising raw material prices. Do you see it continuing?

Down to the fact that important commodities have become more expensive, if you have a larger exposure metal products and things like that, you will find your margins getting eroded. We have seen that in the data as well; if you've seen the PMI numbers, they clearly show that the input prices are rising at a much faster pace than output prices. It's the same thing with WPI inflation being a lot higher than CPI inflation. But this is coming at a time when profits are actually quite high. The profitability and performance of major companies have been high, so clearly there is top line revenue growth in the system. And so companies are able to absorb some of these higher costs. It depends on the relative industries and their ability to pass on higher costs to consumers. In sectors where there is greater competition between different companies you will see that price increases will not take place and margin squeezes will be much more common. In areas where it is common for these price increases to be pushed through, those prices will go up. So, we've seen a bit of a differential performance across the sectors based on what is the nature of the pricing power that they enjoy.

Question: Crude oil prices are above 80 levels. Do you see the uptrend continuing and do you have a level in mind where the prices might consolidate for a while?

Prices have consolidated around $80 a barrel but it is a very volatile market. In my 14 years of working in markets, I've never seen anybody convincingly talk about where oil prices are going to go. It is a very difficult one to predict. But looking at the recent price dynamics, it does not feel like prices are going to come up any time soon, especially going into the winter cycle, when LNG shortages are there and there's a possible winter snap.

Question: Are the central banks underestimating the risk of inflation?

We are a low inflation economy if you really think about it. That is directly a function of the fact that India's per capita income is generally on the lower side, so inflation tends to eat into your income very quickly. Is there underestimation of inflation risks? Well, the data says yes. Most Central Banks were not