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The key takeaway from the minutes of the last meeting of the Monetary Policy Committee is this: the new surge of infections threatens to upend the economic recovery and monetary policy would do all it can to support growth.
Remember, that when the MPC meeting had concluded on April 7th, India’s seven-day average of COVID infections was just over 100,000. Now it is close to 300,000. Many states and cities have imposed lockdowns, which threaten to extend well into the next month as the healthcare infrastructure nears a point of collapse.
The MPC members did not think inflation was such a huge risk and attributed it to supply side pressures. Despite wholesale prices spiking to a multi-year high, growth concerns overrode inflation in the minds of the MPC members.
Governor Shaktikanta Das summed it thus: “Monetary policy should remain accommodative to support, nurture and consolidate the recovery. We need to continue to sustain the impulses of growth in the new financial year 2021-22.”
What form could this monetary policy support take?
According to Nomura Research, the minutes suggest a two-pronged strategy.
One, the MPC will continue with its accommodative stance and forward guidance for the foreseeable future till the recovery is secured.
Two, the central bank will continue focus on trying to manage the government yield curve; several members of the rate setting panel have called for more active usage of the bond buying programme (GSAP) to prevent a premature tightening of financial conditions.
With the consensus veering towards estimating the second wave to peak only by mid-May to June, expect monetary policy to remain accommodative till at least the August review.
Investing insights from our research team:
Bajaj Consumer Care: Is the turnaround worth betting on?
Phillips Carbon: Second wave slams brakes on recovery theme
What else are we reading today?
Opinion
The oxygen mess: How did it all happen?
As Citibank retreats, new MNCs extend their reach
After a strong exit to FY21, will the cement sector stay strong through mini lockdowns?
How the FY22 outlook differs for ICICI's insurance units
Shree Cement’s holding company share sale -- when corporate governance took a back seat
Is a paradigm shift in macroeconomics imminent?
EM issuers raise record $191 billion on foreign debt markets in early 2021 (Republished from the FT)
Jack Ma/Ant Group: a disruptor who is no longer good for business (Republished from the FT)
8 big ideas from the book 'The hard thing about hard things'
Technical picks: SAIL, ICICI Bank, ICICI Bank and JSW Steel (These are published every trading day before markets open and can be read on the app)
avi Krishnan
Moneycontrol Pro
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