Moneycontrol PRO
you are here: HomeNewsOpinion

Moneycontrol Pro Panorama | Inflation, recession, banking crises, what’s next?  

In today’s edition of Moneycontrol Pro Panorama: Indian markets' soar but not revenue, 2023 will likely be the year of layoffs, Khalistan raises its ugly head again, last hurrah for life insurers, and more

March 23, 2023 / 02:21 PM IST
Amid this chaos, monetary policymakers seem to think that they must not lose focus from the fight against inflation.  (Representative image)

Amid this chaos, monetary policymakers seem to think that they must not lose focus from the fight against inflation. (Representative image)

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 

It’s flashing red across economies, equity indices and global financial markets. The monetary policy muscle power that central banks wielded has done little to achieve the stated purpose since the pandemic struck. Inflation continues to rage on. Growth is tipping over precariously into a recession. A banking crisis, seemingly contained by central bank actions and bailouts, is still threatening to implode the financial ecosystem. 

Wednesday’s 25 basis points rate hike by the US Federal Reserve, the ninth consecutive rate increase, was a disappointment mainly because it came against the backdrop of widespread expectations of a pause. Besides, Fed chair Jerome Powell’s statements -- “the fight against inflation is far from over”, “the process of getting inflation down to 2 per cent has a long way to go” -- indicate that more rate hikes are not off the table.  

But what’s confusing is the Federal Open Market Committee (FOMC) statement that the recent developments linked to the banking crisis are likely to tighten credit conditions. Why then did the Fed raise rates? The Fed is flying blind, says Manas Chakravarty in this article. Even policymakers seem to be staring at uncertainty.  

But as the consensus on the Street shows, markets were spooked not by the rate hike, but by US Treasury Secretary Janet Yellen’s remark that a blanket deposit insurance proposal is not on the cards. Expectations are that this could see a run on smaller banks. Customer deposit withdrawals could accelerate.  

America’s renowned hedge fund manager Bill Ackman is of the view that a temporary system-wide deposit guarantee is needed to stop the bleeding. “The longer the uncertainty continues, the more permanent the damage is to the smaller banks, and the more difficult it will be to bring their customers back,” he tweeted. 

The Fed could be right in saying that the Silicon Valley Bank is an “outlier” in an otherwise sound financial system. But the flight of capital from smaller banks is yet to stabilise. The banking crisis is a mystery to the Fed too -- read this FT article (specially for MCPro subscribers).  

Ackman had earlier on cautioned the Fed on hiking rates before order in the banking system is resolved, adding that the contagion could even engulf the US economy.  

One cannot undermine the importance of the banking system and its linkages to various industries, including the small and medium enterprises, construction, real estate and commerce. A takeaway for Indian investors: the banking crisis puts the IT sector at risk, writes R Sreeram here

Amid this chaos, monetary policymakers seem to think that they must not lose focus from the fight against inflation. Last week, even when news of the Credit Suisse collapse made headlines, the European Central Bank raised its key interest rate by 50 bps. Bank of England’s decision on interest rate is due today. Expectations of a 25 bps hike are not unrealistic, given that inflation continues to soar in the region.  

Will the banking crises turn out to be a blessing and help rein in inflation? Read here

Investing insights from our research team

KNR Constructions: On a growth highway

Adani saga could have pernicious effects on India’s new-energy economy

What else are we reading?

India’s life insurers to get the last hurrah on growth before flatlining

Chart of the Day: In spite of hurdles, e2W sales scale new highs in FY23

How effective will Japan’s Indo-Pacific initiative be?

How Indian exchanges stack up against global peers

The spectre of Khalistan has raised its ugly head in Punjab again

With no end in sight yet, will 2023 be the year of layoffs?

Start-up Street: When elephants dance with ponies

Failing Nirbhaya: Lessons from the ten years of the Criminal Laws (Amendment) Act, 2013

The latest IPCC climate crisis report paints nightmarish scenarios for our kids

Time to bury the neoliberal bogeyman

Gas Deal: Why China keeps pulling the rug on Vladimir Putin’s pipeline

Argentina's inflation problem stumped ChatGPT

Technical Picks: IndiamartDaburShivalik Bimetal and Nifty (These are published every trading day before markets open and can be read on the app). 

Vatsala KamatMoneycontrol Pro

Vatsala Kamat