India is more vulnerable than some others owing to its so-called twin deficits: a current account deficit and a fiscal deficit, both of which need financing. In the past few years, this has been easy with huge foreign portfolio investments in both equities and bonds. Now the situation has changed as global financial conditions tighten. Since the start of this financial year, foreign investors have pulled almost $9 billion from Indian markets. … [Read more...] about Opinion | Rupee fall makes case for rate hike in August
Us fed rate hike
The joker in the pack is the increase in minimum support prices (MSP). Economists have projected the increase in inflation from the MSP to range from 30 basis points to 1.1 percentage points. The impact of MSP will depend on how efficiently and how much the government will procure from farmers. Estimating the impact of MSP on inflation is a “challenging task,” said Deputy Governor Viral Acharya. Still, the fact that the central bank sees some impact from it can be seen from the 5 percent projection for the first quarter of FY20. … [Read more...] about Opinion I After rate hike, RBI gears up for period of uncertainty
These factors would put pressure on the current account deficit which is increasingly being financed by volatile portfolio flows rather than stable direct investment flows. With the US central bank returning to monetary policy normalisation and looking at four rate hikes this year, the prospects of portfolio flows too are weakening. … [Read more...] about Opinion I Why RBI will likely raise interest rates on August 1
But central bankers have learned a lesson over the past decade that could inform how they respond when economies reopen, the recovery picks up steam and unemployment falls. Instead of trying to offset very low unemployment with higher interest rates, as they did between 2015 and 2018, they may simply remain patient when the job market begins to heal, humbled by the realisation that the old inflationary rules seem to no longer apply. … [Read more...] about Rock-bottom interest rates may be here to stay
First, what drives returns in a gilt fund? Primarily, returns come from a rally in gilt prices. And that rally comes based on interest rates; more specifically, on interest rate cuts or market expectations of a cut in the future. Gilt instruments are the most liquid among debt instruments, and the impact of rate changes is felt the most here. … [Read more...] about Double-digit returns in gilt funds: Should you rush to invest in them?