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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