It has been a week of regulatory and central bank action and inaction.
The Reserve Bank of India has stayed away from any changes in key rates or the stance of its monetary policy. He played down concerns about inflation and spoke of the need to remain âpatientâ and âperseveringâ in his support for a âstrong, sustainable and inclusive recoveryâ.
That was the title. Then he went ahead and made a decision that left the bond markets buzzing for the rest of the week. The debate was whether the RBI had, well, fooled the markets with the conciliatory narrative while stealthily tightening policy. You can read about it here.
If the RBI stealthily tightens, we have questions. Will it work? More importantly, why? You can read our review here.
Even before this tightening (or not), some banks started raising their deposit rates and others may follow suit. In short, without the bleak technicalities, the rate cycle has turned.
Attention shifted to the market regulator later in the week as it released a consultation paper proposing to extend supervision of algorithmic trading to retail investors.
Concerns have been expressed that this could impact discount brokerage firms due to the broad definition of algo trading. âWhile SEBI’s intention is right, its decision to view all API-based transactions as algos may be bad for the entire ecosystem,â said Nikhil Kamath, co-founder of the larger Indian retail brokerage firm, Zerodha, in a statement. declaration via his Twitter account. Given the surge in retail investor interest in direct equity investment over the past two years, this promises to be a thorny debate.
Meanwhile, incoming data on mutual funds remains encouraging, with monthly entries into systematic investment plans reaching Rs 11,000 crore in November. Now it’s a habit that has really taken hold.
Elsewhere, global markets continue to struggle with concerns about Omicron, China and the US Federal Reserve.
In China, Evergrande ultimately defaulted, but the markets seem to be ignoring it. It might not have been another âLehman Momentâ after all, but concerns about slowing growth in Chinese real estate markets persist. Perhaps to counter some of these concerns, the People’s Bank of China cut its banks’ reserve rate this week. The focus in China has clearly shifted towards stability and growth, Bloomberg writes. China has also increased foreign exchange reserve requirements for banks, which many saw as a way to slow the appreciation of the yuan. By the way, the Indian rupee is at its weakest against the yuan, having fallen by around 5% this year and around 12% since March 2020.
Against the US dollar, the rupee fell to its lowest level in 18 months this week. Nervousness ahead of a very important US Federal Reserve meeting, slowing foreign flows to emerging markets, outperforming earlier in the year due to IPO flows and a few rumors that the RBI downsizing inflation caused the currency to fall.
Come next week, all eyes will be on this Fed meeting, which could hold some surprises, especially after another hot CPI reading.
We will keep you posted. See you next week.