MACRO ECONOMIC NEWS

 Let The Promise Be A Promising Love

Wishing A Committed Day Ahead

 

Best Regards

Arbind

 

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Macro-Economic News 11 Feb 2021

 

The correlation breakdown – a characteristic often visible during the distress – is taking a different shape this pandemic, at least in the global monetary policies. After almost a year of synchronized expansionary (easy) policies, the central banks are preparing themselves for correlation breakdown. The speculation is rising on the quantum and duration of departure. I think the real answer lies in the resiliency (or fragility) of economic sustenance. And obviously, the economy with rigid backbones would walk the path a little far. 

 

The bottom half of the population, in poorer countries, is reducing their expenditure on white goods, while the same in wealthier nations are not left enough to spend. The eastern economies are more focused on enhancing savings for unseen futures while western countries witness a more uneven wealth accumulation. Everywhere the policymakers are struggling to create a capital flow. Visibly the challenges are unique, and hence the solution and tackling tools will be unique too. 

 

Although the inflation and cost of borrowing would remain a concern, the coordination of monetary, fiscal, and administrative steps would be vital. 

 

Subsequently, the momentum for easy policies would continue for another year, or as it appears so - as of now. The US will start tightening during the second half of 2023 while Australia has indicated for 2024. Europe would mostly follow the suit of peers as it cannot afford to deviate on a standalone basis. The UK may see a tweaking and stay there for a year at least. South East Asian nations would mostly continue their lower interest rates and start tightening little earlier than the developed economies; they may not sustain inflationary pressure and capital plight. 

 

Japan, which is already on a near-zero interest rate, would be an interesting case to watch if the yen-carry-trade gains its lost shine during the policy shift. It might also keep its rates lower for at least a year or so. 

 

Another interesting observation (and forecast) would be the speed of winding up the asset purchase, which would mostly depend upon the real capital formation in the respective economies. 

 

The most gripping outcome of the divergence of policy rates would be the distortion of the exchange rate equilibrium that will offer a heaven for the traders in currency, swap, and bond markets. 

 

As written earlier, RBI intervention has brought down the 10-year bond yields to a 6% level, signaling strongly about its rate directionality in the Open Market Operation (OMO) too.

 

The housing market that saw an unexpected rise during fag end of last year has started cooling sharply. This phenomenon is more transparently visible in the UK where the home sales and home prices have contracted by more than expected. The UK is already struggling to maintain its international trades intact that is already troubled out of Brexit. 

 

Fed chair Powell indicated about continuing the easy money policy while seeking more fiscal support. Powell also urged legislators, the private sector, and society, at large, to support job workers in creating a national job drive as its broad national effort to bring Americans back to work.

 

Indian domestic and international trades are getting their momentum back. The same is also reflected in rising tie-ups at corporates as well government level. India is also considering a negotiation of its free trade agreements with ASEAN nations. 

 

Indian rating foresees India’s more meaningful recovery happening only in FY23 following a 10.4 percent growth in 2022. Goldman Sachs confirms vibrant venture capital activities in 2021 following a record quarter last year. 

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