RBI Governor used the term Goldilocks economy while delivering the bimonthly credit and monetary policy yesterday so this is a post explaining the Goldilocks term in brief.
In economics, a Goldilocks economy sustains moderate economic growth and low inflation, which allows a market-friendly monetary policy. Goldilocks economy is characterized by a low unemployment rate, increasing asset prices (stocks, real estate, etc.), low interest rates, steady GDP growth and low inflation.
A bullish economy, with steep growth in market values and low losses due to inflation, denotes strong economic growth, though it may lead to rising inflation. In contrast, a bearish economy is the opposite, with stagnant economic performance and inflation rates soaking up any gains. In either extreme, the RBI acts to either cool off or heat up the economy, primarily by raising or lowering the official interest rates. When there is a balance, i.e. not rapid or stagnant growth, but sustained growth and a reasonably low inflation rate, it is a comfortable zone for investors to find long term growth and attractive values in various asset classes. Therefore, experts have labeled this balance between a bull economy and a bear economy, the Goldilocks Economy.
The name Goldilocks economy comes from children’s story, The Three Bears, when Goldilocks proclaims that the porridge is “not too hot and not too cold…it is just right.” Indeed, with sustained growth and a low inflation rate, the economic is usually considered “just right.”