Time to stay put

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: Instead of asking around where to invest, the current situation, in which there are so many unknown unknowns, calls for letting your money rest in the bank

As the crisis in the world markets deepen, readers’ mails asking for what to do with the money has increased. My sense is, having a job, an income, and some surplus money on hand is itself a big blessing in these times. As large institutions fail in the West, it is the smaller economies like ours that remain steady. Our integration into the global system has not been complete, and that is the reason for such seclusion — no other grand merit. Instead of asking around what to do, such dramatically negative situations call for restraint from action. My take would be to simply keep quiet, and leave the money in the bank. There are so many unknowns now that it is tough to even speculate what will happen next and how long it would be before calm prevails. Doomsday prophets would call this the next great depression, and optimists will look for a revival in the next quarter. All that we know at this time is that 2009 would be a recessionary year for the developed countries. We cannot speak of revival when recession has not even begun to play out.

More liquidity needed
The coordinated action of central banks across the world, to reduce interest rates, at least points to one thing. The interest rate cycle has perhaps peaked. In our case, the short-term markets are crying for liquidity, as dollars move out and liquidity dries up. We don’t have a crisis on hand, but the 50 basis points CRR cut is too little. We need more sops for NRIs, given the current account deficit situation, and we need bigger rate cuts to keep business confidence high. The case for tight money policy has weakened since the last policy review and all eyes are on the review for October 24th or an earlier rate action, given the domestic liquidity situation.