The classic Indian tale of gold, egg curry and hot bikini babes!
Egg Curry and Rice for 1 is still 20 bucks! Thank the Lord |
Let us clarify. We had this story idea revolving around the egg curry and rice initially. Over time it evolved into what it is right now. Read on and you will get the drift.
The Indian hunger for gold and why this could make homes more expensive?
To understand that statement a little better we present a few jaw dropping desi gold facts:
# Indians have stashed 18,000 tons of gold in jewelry, coins and other forms, according to the website of Manappuram Finance Ltd. (MGFL), which extends loans secured by gold.
# Such a hoard would be worth about $923 billion at current international prices, compared with India’s $1.35 trillion banking system.
# ICICI Bank estimates the nation’s households hold $1.1 trillion of gold.
Indian folks have loads of reasons to buy gold. From turning the metal into ornaments to wear to investing for returns, we believe in this metal like none other. The way the gold has appreciated in value over the last decade, with a strong and almost always rising trend, it has become the er, gold standard for us. See? See?
With bank fixed deposit interest rates at about 7 to 8 percent right now annually (4% on normal savings accounts - ICICI Bank figures), people in India find it far more beneficial to invest in gold. So what? You may be asking yourself.
“An asset-liability mismatch stemming from mobilization of low-duration deposits on one hand, and a growing duration of assets on the other, could emerge as the biggest threat for Indian banks,” A.S.V. Krishnan, a Mumbai-based banking analyst at Ambit Capital Ltd. has said recently.
“Loan growth will have to decelerate further if the credit-to-deposit ratio rises from these levels,” Yes Bank’s Kapoor said on March 15th in an interview.
In reality, this mobilization mismatch could slow down the credit side business of the banks, making home loans a little tighter and certainly more expensive. In effect you would end up paying substantially more for that new house you bought. But all is not bad. “The amount of gold imports into the country and growth in gold loans suggest that a significant portion of financial savings is going into gold,” Fitch’s Saswata Guha said on March 15. Investors don’t need to panic because “once this conundrum of inflation is resolved, deposits will flow back to banks.” Inflation? Resolved? Herein comes the anda (Hindi for egg) curry connection.
The inflation problem in India and who the f*** ate my veggies?
Inflation leads to a rise in the general price level so that money loses its value. When inflation is high, people may lose confidence in money as the real value of savings is severely reduced. Savers will lose out if nominal interest rates are lower than inflation – leading to negative real interest rates. For example at ICICI Bank, you could receive an 8.75% rate of interest on your fixed deposit account, but if the annual rate of inflation is 11%, which it has been on an average in 2012, then the real rate of interest on savings is negative at -2.25%. And you thought all that money sitting in your bank was making you richer. Darn!
Inflation can get out of control because price increases lead to higher salary demands as people try to maintain their current living standards. Businesses then increase prices to maintain profits and higher prices then put further pressure on salaries. This process is known as a ‘wage-price spiral’. And even if you are a lay man literally, you would know that this phenomenon is not really going to end on a happy note once it becomes a recurring one. More generally, inflation can disrupt business planning. Budgeting becomes difficult because of the uncertainty created by rising inflation of both prices and costs - and this may reduce planned capital investment spending. Lower investment could then have a detrimental effect on the economy’s long run growth potential.
Which then brings us to the bikini babes, who happen to be the last and most eagerly awaited part of this post. Sorry buddy, we added that part just for the effect. :-D Get real, please!
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