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The party for stocks may get over sooner as the US Fed readies to take the punchbowl away.
At the meeting of the Fed Open Markets Committee in mid-March, following which rates were hiked 25 basis points, officials discussed how they wanted to quickly reduce the US central bank’s balance sheet. This could be as much as $100 billion per month.
Most FOMC members were also inclined towards more aggressive rate hikes in future.
“Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” the minutes of the meeting read.
Investors should brace for more volatility, says our research team. You can read its note here.
The Fed meeting minutes release comes a day ahead of the Reserve Bank of India’s rate decision. The consensus view is that the Indian central bank will not change its current accommodative stance.
It will stick to this despite likely revising its estimates of inflation and growth for FY23. Inflation was earlier projected at 4.5 percent, but this estimate has been torpedoed by the Russia-Ukraine war. Commodity prices have soared and the central bank is likely to raise its inflation projection by up to a percentage point, say some economists.
Naturally, a section of the commentariat is saying the Indian central bank is behind the curve.
The key reason why RBI’s rate panel is likely to hold the stance is that growth is still nascent. In tomorrow’s statement, the central bank is likely to pare its real GDP growth forecast from the earlier 7.8 percent. Private consumption growth is tepid and consumer sentiment is quite weak. This is quite different from the US where growth is strong.
A second reason is that the rise in inflation is mostly from the supply side. Expect an appeal from the central bank to the government to cut excise taxes on fuel.
Another reason for maintaining the accommodative stance is to provide support to government borrowing.
“A possible shortfall in demand for government bonds by about Rs 3-3.5 trillion vis-à-vis a central government gross borrowings requirement of Rs 14.35 trillion, would necessitate RBI support through open market purchase of bonds. That would help maintain supportive financial conditions during the ongoing normalisation phase,” said IndusInd Bank Chief Economist Gaurav Kapur in a note to clients.
That may be so. So far, the cost push has not led to any general wage pressures, but the danger is that inflation expectations could rise and become entrenched. The Monetary Policy Committee has a tricky road ahead to navigate.
Investing insights from our research team
Titan Company: Weak quarterly numbers, but strong long-term growth prospects
Godrej Consumer Products: Revenue gets pricing backing, pressure is on margins
KIMS: A play on healthcare demand in the hinterland
What else are we reading?
Anti-profiteering blinkers may turn GST rate cuts into a nightmare
Why this is a time to be cautious in the markets
Crypto Conversations | SocialFi: The next big thing?
Start-up Street: Healthcare startups and wasted opportunities
Cap on power tariff a myopic strategy
Firm crop prices hold out hope for agriculture input providers
AAP looks to usurp Congress' space on Narendra Modi's home turf
Financial warfare: Will there be a backlash against the dollar? (republished from the FT)
Technical Picks: HPCL, SRF, Guar seed, IOC, ONGC and USD-INR (These are published every trading day before markets open and can be read on the app)
Ravi Krishnan Moneycontrol Pro
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