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Morning Market Starter

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06th Oct 2022  –   09:00 am

India Agriculture: Above normal monsoon but marginally lower sowing

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Trade September 2022

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The Weekly Update: Living in times of volatility

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China economy: Re-visiting the magnitude of slowdown

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CENTRAL BANK ZONE

Reserve Bank of India

In the August policy meet, the MPC hiked policy repo by 50bps to 5.40% (6-0 vote) and kept the stance unchanged (5-1 vote). As on date, the cumulative rate hikes stood at 140bps since May policy. MPC kept the stance unchanged to withdrawal of accommodation

While inflation outlook has improved, MPC kept the FY23 inflation forecast at 6.7%. Growth projection too retained at 7.2% with broad-based increase visible across sectors. Liquidity has tightened and is expected to tighten further given likely FX intervention (higher trade deficit – USD 280bn and higher CAD – USD 120bn), currency demand (upcoming festive season) and CRR build-up

We see repo rate at 6.25% by end-2022 as MPC may want to keep up the pace with the US Fed, which is expected to deliver 150-175bps rate hikes going ahead

Federal Reserve

In its policy meeting in September, the FOMC raised the policy rate by 75bps to the 3.00%-3.25% range and provided a hawkish guidance via its dot plot. The dot plot showed that the policy rate would move to 4.4% by Decemebr 2022 and to 4.6% December 2023. Growth projections were lowered, unemployment projections were raised and inflation projections were increased

In the next policy meeting in November, we expect the FOMC to tighten policy rates by 75bps as it continues to address structural inflationary pressures. We expect the hawkish guidance to remain unchanged

We expect a terminal rate of 4.25%-4.50% with risk that it could be higher depending on the inflation trajectory. We also expect QT to remain in operation at a rate of USD 90bn per month

Bank Of England

In the last policy meeting in September, the BoE raised the policy rate by 50bps on expected lines, lowered its inflation projections and indicated that a recession might be less severe than previously assumed. However, it provided a hawkish guidance indicating that it will continue to respond to elevated inflation

In the November policy meeting, we see possibility of a 100bps to 150bps rate hike in response to the fiscal stimulus that was provided. Medium-term inflationary risks as well as exchange rate pressures will work as the main catalysts behind the decision

We see a further cumulative 200bps-250bps rate hike by the BoE over 2022-2023 responding to a much higher inflation trajectory

European Central Bank

In its September policy meeting, the ECB raised its policy rates by 75bps and provided a hawkish guidance reflecting medium-term inflation concerns. Reinvestment program was kept in place along with a guidance that QT will not be considered

We see a further 50bps hike in October policy meeting with a hawkish guidance likely to be maintained

We see a further 50bps hike in October policy meeting with a hawkish guidance likely to be maintained

People's Bank of China

The PBOC delivered another 50 bps cut in the RRR in December, cut the one-year loan prime lending rate by 15 bps to 3.75% and cut the one-year medium-term loan facility rate by 10bps to 2.75% reflecting ongoing concerns about the real estate sector and the economy

The PBOC has become increasingly concerned about inflation. Hence, we see limited possibility of further rate cuts and expect the central bank to move towards a liquidity neutral regime

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