Imperfect knowledge inflation expectations and monetary policy

Share to Twitter Share to Linkedin Topline The stock market rebounded strongly on Friday, posting its first positive week this month as recession fears subsided somewhat thanks to positive economic data suggesting that inflation may have peaked, while some experts expressed optimism about the health of the economy. Key Facts Stocks snapped a three-week losing streak on Friday: The Dow Jones Industrial Average rose 2.7%, over 800 points, while the S&P 500 jumped 3.1% and the tech-heavy Nasdaq Composite 3.3%. Markets got a boost after the latest consumer sentiment survey from the University of Michigan showed that inflation expectations eased slightly in June, rising 5.3% compared to a year ago—but lower than the 5.4% expected. Investors also cheered optimistic remarks about the economy from St. Louis Federal Reserve President James Bullard, who said that recession fears are “overblown” and consumer spending remains strong. Stocks … [Read more...] about Dow Jumps 800 Points, Stocks Snap Three-Week Losing Streak After Inflation Expectations Ease

“The time is appropriate to go for a further increase in the policy rate to effectively deal with inflation and inflation expectations,” RBI governor Shakitkanta Das, who heads the six-member panel, said. "As our policy in recent months has been unambiguously focussed on withdrawal of accommodation, both in terms of liquidity and rates, the change in the wording of stance should be seen as a continuation and fine-tuning of our recent approach," Das added. "The withdrawal of accommodation, as I see it, would be non-disruptive to the process of recovery and would strengthen our ongoing efforts to combat inflation and anchor inflation expectations." The MPC raised the repo rate by 50 basis points on June 8 , almost a month after it had gone for 40 basis point hike in an off-cycle policy meeting to combat rising price pressure. One basis point is one-hundredth of a percentage point. Retail inflation came in at 7.04 percent in May , easing from a near-eight-year high of 7.79 … [Read more...] about RBI committed to bringing inflation within target, MPC meeting minutes show

RBI Governor Shaktikanta Das (File image) The Reserve Bank of India (RBI) is “well on track” to bringing down inflation and inflation expectations in the economy against the backdrop of supply side disruptions, the governor said. “Until December, CPI (Consumer Price Index) inflation is expected to remain higher than the upper tolerance level; thereafter it is expected to go below 6 percent as per our current projections,” Shaktikanta Das said in an interview to The Times of India. "There will be inflationary pressures, and only in the fourth quarter, we have projected it to go below 6 percent.” The governor acknowledged that high inflation hurts people the most, especially the lower segment of society which is hit the hardest. Hence, it is desirable that the country has a framework for inflation and that monetary policy operates within that, Das said. The RBI’s analysis shows that when consumer inflation exceeds 6 percent, it is negative for growth, he said, adding … [Read more...] about RBI well on track to bringing down inflation, says Governor Shaktikanta Das

The markets are yet to find their trough, and real interest rates in the US (down 700bps from pre-pandemic levels) are likely to outgrow the hike in India (down only 300bps from pre-pandemic levels). This is likely to accelerate capital outflows and form a vicious cycle impacting the currency, inflation, real yields and causing further capital drain, believes IIFL Securities Chairman R Venkataraman. At an interview with Moneycontrol , he says that that markets are some way off from the bottom and there could be another 15 percent correction from here. "We suggest Cipla , SBI Life , HUL , ITC , Ashok Leyland , Persistent Systems , Deepak Nitrite , ICICI Bank as our top picks after a severe correction," Venkataraman shares. Excerpts from the interview: What is the message you get from the central banks that continued rate hikes and hinted more hikes to control inflation? Central banks worldwide were clearly taken by surprise at the violent inflationary … [Read more...] about Daily Voice | More capital drain on cards, expect 15% more correction, says R Venkataraman of IIFL Securities

An analysis of supply chain pressures by Reserve Bank of India (RBI) staff has found that the current upside risks to inflation and downside risks to exports may persist. The findings were drawn upon from the index of supply chain pressures for India - or ISPI - developed by RBI staff, including RBI Deputy Governor Michael Patra. "...our ISPI...displays lead indicator properties in respect of export volumes and inflation. This suggests that the prevailing upside risks to inflation and downward risks to export performance may persist," said the article released by the RBI on April 18. Also read: RBI Bulletin: Spurring private investments key to sustaining growth "Looking ahead, co-ordinated actions are required to fast track consensus-based supply chain protocols, gaps in the physical and digital infrastructure, labour shortages and shortfall in investment in capacity creation," the article added. Close The other authors of the article are Harendra Behera … [Read more...] about Supply chain pressures suggest upside risks to inflation may persist, RBI staff find

- A + A (June 23): Singapore’s key inflation gauge accelerated for a third month to the fastest in almost 14 years, bolstering the case for further monetary policy tightening and stronger action to buffer consumers from the drag of rising prices. The central bank’s closely watched core inflation print, which excludes private transport and accommodation, rose by 3.6% from a year ago in May, according to a joint statement on Thursday (June 23) from the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI). That pace, the fastest since December 2008, matches the median estimate in a Bloomberg survey, and compares with 3.3% in April. The increase was due to inflation across food, services, retail goods and energy, they said in the statement. They also repeated a warning from last month that prices will pick up in the coming months before easing toward year end as external pressures recede, while flagging upside risk from geopolitical … [Read more...] about Singapore’s faster inflation adds pressure to tighten policy

Share to Twitter Share to Linkedin Topline Despite increased concerns over a looming recession, a growing number of experts believe that upcoming discounts and easing supply chain disruptions may help cool the rate of inflation more quickly than expected, potentially offering a much-needed respite to cash-strapped Americans and investors wary over the implications of rapidly tightening monetary policy. Key Facts Though spiking gas prices may push overall inflation higher this year, core inflation, which excludes volatile food and energy prices, has peaked “and will fall faster than markets and the Federal Reserve expect,” economists at Pantheon Macro wrote in a Wednesday note. With a stronger dollar starting to make imports cheaper and rising inventories starting to quell supply shortages, the economists project inflation, which unexpectedly hit a 41-year high of 8.6% in May, will fall to 4.9% by the beginning of next year as core inflation … [Read more...] about Why A Strong Dollar And Retail Inventory Blunders Could Help Push Inflation Down By Next Year

Share to Twitter Share to Linkedin Topline Federal Reserve Chairman Jerome Powell pledged in testimony before Congress on Wednesday that the central bank is “moving expeditiously” to raise interest rates and remains “strongly committed” to doing so until there is “compelling evidence” that inflation is normalizing. Key Facts In his semiannual testimony on monetary policy to Congress, Powell faced questions from lawmakers about how the central bank will proceed as it looks to combat surging inflation, which remains at 41-year highs. The Fed raised rates by 75 basis points last week—its largest increase since 1994, with Powell also signaling that a similarly large rate hike is likely at the next policy meeting in July. Speaking to Congress on Wednesday, Powell pledged that the Fed wouldn’t hesitate to keep raising rates at a fast clip—and further than projected—if higher inflation continues to persist. “It is essential that we bring … [Read more...] about Powell Says Fed Will Continue Hiking Rates Until There Is ‘Compelling Evidence’ That Inflation Is Slowing

Share to Twitter Share to Linkedin Topline Stocks fell slightly on Wednesday as a growing number of major Wall Street firms warned that the likelihood of a recession has risen sharply, while Federal Reserve Chair Jerome Powell pledged that the central bank is “ strongly committed ” to raising rates until inflation moderates. Key Facts Markets finished lower in choppy trading: The Dow Jones Industrial Average fell 0.2%, less than 100 points, while the S&P 500 lost 0.1% and the tech-heavy Nasdaq Composite 0.2%. The Dow was down by as much as 400 points but stocks pared back losses following comments from Fed Chair Powell, who said the central bank is “determined to take the measures necessary to restore price stability” and that “ongoing rate increases will be appropriate.” Citigroup became the latest Wall Street bank to increase its recession odds, meanwhile, forecasting a 50% chance of a downturn as consumer demand “looks to be … [Read more...] about Stocks Fall After Powell Pledges More Big Rate Hikes To Combat Inflation

- A + A (June 23): The Philippine central bank increased its key interest rate for a second straight meeting and raised its inflation forecast, continuing a gradual pace of normalisation while it faces a slumping currency. Bangko Sentral ng Pilipinas raised the benchmark rate by 25 basis points to 2.5%, it said in a statement on Thursday (June 23), as forecast by 17 of 25 economists in a Bloomberg survey. The rest saw a half-point increase. The peso was 0.1% lower at 54.5 per dollar as of 3.06pm local time, holding near its weakest level since 2005. The benchmark stock gauge closed down 1.7% before the decision. BSP’s rate-hike cycle is picking up momentum as inflation accelerates at its quickest in more than three years. Many policymakers in Southeast Asia have been relatively slower than other global central banks, particularly the US Federal Reserve, in normalising rates as they focus on solidifying their economic recoveries from the pandemic. The … [Read more...] about Philippines raises key rate on inflation risks, peso slump