Indian stocks started the week in the red, but they reversed during the session to end with gains.

Global cues in Asian trading hours pointed to weakness for risky assets as investors focused on the yen after a Japanese official said they were ready to intervene 24/7 in the currency market to shore up the currency.

However, buying the dips pushed Indian benchmark indices to turn green in the second half of the session.

The blue-chip Sensex index started the day over 300 points lower but finished the session with over 130 points of gains to close at 77,341.08.

The pattern in the broader Nifty 50 index was similar. The index closed 0.16 per cent higher at 23,537.85, not far from its record high of 23,667.10.

New highs this week?

Looking at the trend over the last two weeks, barring Monday, Indian stocks have hit a record high in each session since June 7.

The Sensex is looking at a new milestone of 78,000, while the Nifty is eying the 24,000 mark.

The run-up in Indian stocks intensified after the near $400 billion loss on the election results day,

Since then, benchmark indices have risen over 7 per cent, and the voting count day losses were recovered within three sessions.

That marked the fastest pace of recovery of over 5 per cent loss in the last decade.

Budget questions remain

Bets on a pro-growth budget have boosted stocks, but questions on fiscal discipline and job creation policies have kept them in check.

Broadly, India's growth is projected by the Reserve Bank of India and major global institutions to be over 7 per cent in the current year, making it the fastest-growing major economy again.

However, a new coalition government has cast some doubt in investors' minds about the reforms push for tough policies.

Fed's preferred inflation in focus

This week, investors will eye the US Federal Reserve's preferred inflation data for clues on the rate path.

While the US central bank has acknowledged a disinflation trend gripping in, policymakers also bet on higher rates for longer.

Fed officials want evidence that inflation is tracking back to the central bank's target.

Indian stocks started the week in the red, but they reversed during the session to end with gains. Global cues in Asian trading hours pointed to weakness for risky assets as investors focused on the yen after a Japanese official said they were ready to intervene 24/7 in the currency market to shore up the currency.

Indian stocks started the week in the red, but they reversed during the session to end with gains. Global cues in Asian trading hours pointed to weakness for risky assets as investors focused on the yen after a Japanese official said they were ready to intervene 24/7 in the currency market to shore up the currency. However, buying the dips pushed Indian benchmark indices to turn green in the second half of the session. The blue-chip Sensex index started the day over 300 points lower but finished the session with over 130 points of gains to close at 77,341.08. The pattern in the broader Nifty 50 index was similar. The index closed 0.16 per cent higher at 23,537.85, not far from its record high of 23,667.10. New highs this week? Looking at the trend over the last two weeks, barring Monday, Indian stocks have hit a record high in each session since June 7. The Sensex is looking at a new milestone of 78,000, while the Nifty is eying the 24,000 mark. The run-up in Indian stocks intensified after the near $400 billion loss on the election results day, Since then, benchmark indices have risen over 7 per cent, and the voting count day losses were recovered within three sessions. That marked the fastest pace of recovery of over 5 per cent loss in the last decade. Budget questions remain Bets on a pro-growth budget have boosted stocks, but questions on fiscal discipline and job creation policies have kept them in check. Broadly, India's growth is projected by the Reserve Bank of India and major global institutions to be over 7 per cent in the current year, making it the fastest-growing major economy again. However, a new coalition government has cast some doubt in investors' minds about the reforms push for tough policies. Fed's preferred inflation in focus This week, investors will eye the US Federal Reserve's preferred inflation data for clues on the rate path. While the US central bank has acknowledged a disinflation trend gripping in, policymakers also bet on higher rates for longer. Fed officials want evidence that inflation is tracking back to the central bank's target.

Volatile Indian stocks off to a green start for the week

India's foreign exchange reserves fell in the latest week as the Reserve Bank of India intervened in the currency market to limit the rupee's fall against a strengthening dollar.

This comes after the country's import cover hit record highs for two weeks before the latest week.

<a href="https://m.rbi.org.in/Scripts/WSSViewDetail.aspx?TYPE=Section&amp;PARAM1=2">The RBI's weekly statistical supplement data</a> showed that the forex reserves fell to around <a href="https://rbidocs.rbi.org.in/rdocs/Wss/PDFs/2T_21062024B70233796770444AABEC806983B80B3B.PDF">$653 billion</a> in the week ending June 14, down from a record high of nearly <a href="https://rbidocs.rbi.org.in/rdocs/Wss/PDFs/2T_1406202483650C57AB514A3EB6695F1B61FFEC9B.PDF">$656 billion</a> the previous week.

Foreign exchange reserves help a country pay for imports, and the war chest is used for external debt payments.

Usually, currency moves weigh heavily on the import cover, and the story is no different in the latest week.

Dollar strength weighing on rupee

The dollar has strengthened on bets the US Federal Reserve will take longer to pivot to policy easing even as other major central banks have brought their knives out already.

According to the latest Federal Open Market Committee's (FOMC) dot plot projections, the central bank will cut rates just once by the end of this year, compared to three pencilled in by US policymakers themselves as recently as March.

While the RBI is also not likely to cut rates anytime soon, and the last leg of the inflation fight is likely to take longer than previously thought, the Fed's outlook drives global currencies.

With the monetary policy divergence out of the scenario, the rupee's moves are not driven solely by the other side of the exchange story.

Foreign inflows remain a question mark

While Indian stocks have risen to repeat record highs this month, foreign inflows have been subdued, and demand for dollars by importers and large institutions has jumped.

Broadly, foreign investors have stayed on the sidelines even as the inflows into Indian bonds have jumped in recent weeks.

Traders say the <a href="https://www.wionews.com/business-economy/rbi-intervention-helps-the-indian-rupee-avoid-record-low-731011">RBI has intervened in the forex market</a> to prevent extreme moves in the rupee and limit its fall.

"The Indian rupee started experiencing pressure due to the recent election results, which led to a coalition government, dampening investor sentiments," said Amit Pabari, Managing Director and founder of CR Forex.

"Moreover, the Indian rupee has been under pressure due to increased demand from oil importers, a factor that has been further exacerbated by the hawkish Fed policy and stronger-than-expected economic data from the US, keeping the Indian rupee on the weaker side last week," added Pabari.

Still, India's import war chest has swelled this year and is near record highs, giving the central bank more buffer to keep the rupee in a range, albeit near record lows.

This week, the Indian currency hit its weakest level against the dollar, with dollar demand jumping and a rise in global oil prices weighing on the rupee.

India vs its neighbours' FX reserves

Despite the nearly $3 billion fall in India's FX reserves in the latest week, the country is better off than its neighbours, who have, at best, a few months of import cover as foreign currency reserves.

The weekly changes in reserves matter little to financial markets unless there is a significant change.

With <a href="https://www.wionews.com/business-economy/indias-economy-gains-momentum-business-activity-jumps-job-creation-at-18-year-high-733945">India's economic growth</a> on a solid path and one of the fastest rates in the world, investors will likely see this as a blip rather than a trend.

The outlook for the country's reserves remains broadly robust even as the rupee hit its weakest rate against the dollar this week.

"The major trigger for the rupee's fall towards its all-time low was a major outflow of $1.7 billion from Vodafone's Indus Tower stake sale, which exerted considerable pressure on the currency, especially in the absence of bids for the dollar," said Pabari.

"Additionally, dollar demand from oil-importing companies has recently surged, resulting in a rise in oil prices, which have risen by nearly 10.5% in the past two weeks. The rupee faced some strain, which combined to make it mark its all-time low," added CR Forex's Managing Director.

Traders expect the RBI to dip into the forex reserves to stem the fall in the rupee.

However, they do not predict any significant erosion of the country's import war chest.

Outlook for the rupee ahead of the budget

The rupee is broadly expected to remain in a tight range, albeit near record low levels as investors eye several announcements from the coalition government's new budget.

Pabari from CR Forex said, "Factors including economic conditions, investor sentiment, and global market trends can influence the rupee's outlook ahead of the budget announcement."

"It's important to note that the performance of the rupee post-budget under coalition governments has been far from predictable. The need to appease multiple political partners often results in cautious budgets, which can hinder the implementation of bold reforms. In such scenarios, markets tend to respond more favourably to budgets that demonstrate fiscal prudence and clear reform measures," he added.

India's foreign exchange reserves fell in the latest week as the Reserve Bank of India intervened in the currency market to limit the rupee's fall against a strengthening dollar.

India's foreign exchange reserves fell in the latest week as the Reserve Bank of India intervened in the currency market to limit the rupee's fall against a strengthening dollar. This comes after the country's import cover hit record highs for two weeks before the latest week. The RBI's weekly statistical supplement data showed that the forex reserves fell to around $653 billion in the week ending June 14, down from a record high of nearly $656 billion the previous week. Foreign exchange reserves help a country pay for imports, and the war chest is used for external debt payments. Usually, currency moves weigh heavily on the import cover, and the story is no different in the latest week. Dollar strength weighing on rupee The dollar has strengthened on bets the US Federal Reserve will take longer to pivot to policy easing even as other major central banks have brought their knives out already. According to the latest Federal Open Market Committee's (FOMC) dot plot projections, the central bank will cut rates just once by the end of this year, compared to three pencilled in by US policymakers themselves as recently as March. While the RBI is also not likely to cut rates anytime soon, and the last leg of the inflation fight is likely to take longer than previously thought, the Fed's outlook drives global currencies. With the monetary policy divergence out of the scenario, the rupee's moves are not driven solely by the other side of the exchange story. Foreign inflows remain a question mark While Indian stocks have risen to repeat record highs this month, foreign inflows have been subdued, and demand for dollars by importers and large institutions has jumped. Broadly, foreign investors have stayed on the sidelines even as the inflows into Indian bonds have jumped in recent weeks. Traders say the RBI has intervened in the forex market to prevent extreme moves in the rupee and limit its fall. "The Indian rupee started experiencing pressure due to the recent election results, which led to a coalition government, dampening investor sentiments," said Amit Pabari, Managing Director and founder of CR Forex. "Moreover, the Indian rupee has been under pressure due to increased demand from oil importers, a factor that has been further exacerbated by the hawkish Fed policy and stronger-than-expected economic data from the US, keeping the Indian rupee on the weaker side last week," added Pabari. Still, India's import war chest has swelled this year and is near record highs, giving the central bank more buffer to keep the rupee in a range, albeit near record lows. This week, the Indian currency hit its weakest level against the dollar, with dollar demand jumping and a rise in global oil prices weighing on the rupee. India vs its neighbours' FX reserves Despite the nearly $3 billion fall in India's FX reserves in the latest week, the country is better off than its neighbours, who have, at best, a few months of import cover as foreign currency reserves. The weekly changes in reserves matter little to financial markets unless there is a significant change. With India's economic growth on a solid path and one of the fastest rates in the world, investors will likely see this as a blip rather than a trend. The outlook for the country's reserves remains broadly robust even as the rupee hit its weakest rate against the dollar this week. "The major trigger for the rupee's fall towards its all-time low was a major outflow of $1.7 billion from Vodafone's Indus Tower stake sale, which exerted considerable pressure on the currency, especially in the absence of bids for the dollar," said Pabari. "Additionally, dollar demand from oil-importing companies has recently surged, resulting in a rise in oil prices, which have risen by nearly 10.5% in the past two weeks. The rupee faced some strain, which combined to make it mark its all-time low," added CR Forex's Managing Director. Traders expect the RBI to dip into the forex reserves to stem the fall in the rupee. However, they do not predict any significant erosion of the country's import war chest. Outlook for the rupee ahead of the budget The rupee is broadly expected to remain in a tight range, albeit near record low levels as investors eye several announcements from the coalition government's new budget. Pabari from CR Forex said, "Factors including economic conditions, investor sentiment, and global market trends can influence the rupee's outlook ahead of the budget announcement." "It's important to note that the performance of the rupee post-budget under coalition governments has been far from predictable. The need to appease multiple political partners often results in cautious budgets, which can hinder the implementation of bold reforms. In such scenarios, markets tend to respond more favourably to budgets that demonstrate fiscal prudence and clear reform measures," he added.

India's forex reserves fall from record highs

Tuesday marked another day of records for Indian stocks after last week's rally, and the country's benchmark indices' market value was above $5 trillion.

Indian stocks hit fresh all-time highs on Tuesday.

With global cues pointing to more gains for record-high Indian stocks, traders came out all guns blazing after the market holiday on Monday on account of Eid Al Adha.

On Tuesday, the blue-chip Sensex opened at a new record high of 77,235 and rose further to a new all-time intra-day high of 77,367.

The broader Nifty 50 index started at a life high of 23,571 and jumped to a record of 23,574.

Investors will see if the Nifty can extend its gains this week.

Market value and trading volumes will also be in focus this week.

Last week, the country's stock market became a part of the exclusive $5 trillion club of the United States, China, Japan, and Hong Kong.

It took India about six months to add the latest $1 trillion to the market value of companies listed.

The fact that millions of young Indians have flocked to stock investing is a defining characteristic of gains in the last several years.

The entire record rush is fueled by domestic investors, with foreign entities staying on the sidelines.

Record rally

Last week, the Nifty index gained in four out of five sessions and hit new highs every day.

Not far behind, the Sensex had two records in five days.

After a near-$400 billion wipeout on election results day, the recovery of those losses has been brisk, taking just three days.

That is the fastest recovery rate of over 5 per cent loss in the last decade.

Trade volumes jumped to a record last week, and investors are looking at further highs in the coming week.

Reasons for record highs

So, what is driving this rally?

Bets that the new coalition government will focus on policy continuity and consider boosting consumer spending through tax cuts.

While the centre will focus on fiscal discipline, the broader expectations are that the new budget will benefit the Indian middle class.

Tuesday marked another day of records for Indian stocks after last week's rally, and the country's benchmark indices' market value was above $5 trillion. Indian stocks hit fresh all-time highs on Tuesday.

Tuesday marked another day of records for Indian stocks after last week's rally, and the country's benchmark indices' market value was above $5 trillion. Indian stocks hit fresh all-time highs on Tuesday. With global cues pointing to more gains for record-high Indian stocks, traders came out all guns blazing after the market holiday on Monday on account of Eid Al Adha. On Tuesday, the blue-chip Sensex opened at a new record high of 77,235 and rose further to a new all-time intra-day high of 77,367. The broader Nifty 50 index started at a life high of 23,571 and jumped to a record of 23,574. Investors will see if the Nifty can extend its gains this week. Market value and trading volumes will also be in focus this week. Last week, the country's stock market became a part of the exclusive $5 trillion club of the United States, China, Japan, and Hong Kong. It took India about six months to add the latest $1 trillion to the market value of companies listed. The fact that millions of young Indians have flocked to stock investing is a defining characteristic of gains in the last several years. The entire record rush is fueled by domestic investors, with foreign entities staying on the sidelines. Record rally Last week, the Nifty index gained in four out of five sessions and hit new highs every day. Not far behind, the Sensex had two records in five days. After a near-$400 billion wipeout on election results day, the recovery of those losses has been brisk, taking just three days. That is the fastest recovery rate of over 5 per cent loss in the last decade. Trade volumes jumped to a record last week, and investors are looking at further highs in the coming week. Reasons for record highs So, what is driving this rally? Bets that the new coalition government will focus on policy continuity and consider boosting consumer spending through tax cuts. While the centre will focus on fiscal discipline, the broader expectations are that the new budget will benefit the Indian middle class.

Indian stocks start week at new life highs

Investors will eye this week's trading sessions to see if Indian stocks, which have made a brisk recovery from election results day loss, continue on the record rally path.

However, the volatility has also been high, with global cues pointing to weakness in world stocks.

Global risks are weighing on trades in Asian hours, with geopolitics and trade wars weighing on investor sentiment.

Asian stocks stumbled in early trade even as stocks on Wall Street hit a record high.

The broader Nifty 50 index hit a record high every single day last week and closed with gains in four of the five sessions.

The blue-chip Sensex index was not too far behind, with two records in five days.

After near-400 billion-dollar wipeout on the voting count day, the recovery in Indian shares was brisk, with the losses recouped in just three days.

That significant recovery marked the fastest pace of recovery in the last decade.

Trading volumes hit a high

Last week, foreign buying and broader global market recovery pushed Indian stock trading volumes to a record high.

Bloomberg data shows that the 10-day moving average volume on India's benchmark indices rose to $21 billion in the middle of the week.

The rise in volumes marked a jump of about 50 per cent over the past month.

To put that into context, the trading volume was in the $6 to $10 billion range between 2022 and September last year.

However, the closing change over the past week has been negligible with less than 1 per cent moves.

While trades show record highs, the closing figures have barely moved the needle.

What to expect?

Investors will eye the trade volumes and life high levels for benchmark indices this week.

Can the Nifty index breach its all-time high of 23,490 hit on Friday?

Can the Nifty end this week's session in the positive and mark the fifth consecutive session of gains?

Can the Sensex surpass its life high of 77,145 reached on Thursday?

Besides these, the biggest trend would be global sentiment for the rest of the week.

Investors will eye this week's trading sessions to see if Indian stocks, which have made a brisk recovery from election results day loss, continue on the record rally path.

Investors will eye this week's trading sessions to see if Indian stocks, which have made a brisk recovery from election results day loss, continue on the record rally path. However, the volatility has also been high, with global cues pointing to weakness in world stocks. Global risks are weighing on trades in Asian hours, with geopolitics and trade wars weighing on investor sentiment. Asian stocks stumbled in early trade even as stocks on Wall Street hit a record high. The broader Nifty 50 index hit a record high every single day last week and closed with gains in four of the five sessions. The blue-chip Sensex index was not too far behind, with two records in five days. After near-400 billion-dollar wipeout on the voting count day, the recovery in Indian shares was brisk, with the losses recouped in just three days. That significant recovery marked the fastest pace of recovery in the last decade. Trading volumes hit a high Last week, foreign buying and broader global market recovery pushed Indian stock trading volumes to a record high. Bloomberg data shows that the 10-day moving average volume on India's benchmark indices rose to $21 billion in the middle of the week. The rise in volumes marked a jump of about 50 per cent over the past month. To put that into context, the trading volume was in the $6 to $10 billion range between 2022 and September last year. However, the closing change over the past week has been negligible with less than 1 per cent moves. While trades show record highs, the closing figures have barely moved the needle. What to expect? Investors will eye the trade volumes and life high levels for benchmark indices this week. Can the Nifty index breach its all-time high of 23,490 hit on Friday? Can the Nifty end this week's session in the positive and mark the fifth consecutive session of gains? Can the Sensex surpass its life high of 77,145 reached on Thursday? Besides these, the biggest trend would be global sentiment for the rest of the week.

Can Indian stocks continue their record rally?

What can you expect from Indian stocks this week after rallying to all-time highs?

On Friday, Indian stocks rallied significantly to all-time highs after tanking nearly $400 billion on Tuesday, which marked the worst session in four years.

After the swearing-in ceremony of Prime Minister Narendra Modi and 73 ministers, the new government's resolve in growth policies will be in focus.

Foreign investors will turn their attention to the budget, which is pegged as an important event that will define Modi 3.0's resolve to push through growth policies and fiscal discipline plans.

After an eventful week, investors are likely to remain confident in the Reserve Bank of India's robust growth outlook.

Last week, the blue-chip Sensex index first hit record highs on Monday and then breached that level on Friday.

During Friday's session, the Sensex index rose to a record high of 76,795 and closed over 1,600 points at a new all-time high of 76,693.36.

The stock recovery after the rout on Tuesday has been a remarkable turnaround.

The broader Nifty 50 index gained over two per cent, ending at 23,290.

Now, the focus turns to this week to see if the index can maintain that momentum and hit new highs on a better growth outlook.

RBI's robust growth outlook

India is the fastest-growing major economy, and the RBI's projections show the country will continue to be a rising star.

While the central bank kept rates unchanged for the eighth consecutive time, the growth forecast for the current fiscal year was upgraded to 7.2 per cent from 7.0 per cent previously.

However, the central bank left its projections for inflation at 4.5 per cent. While the RBI governor was upbeat on growth, elevated food inflation remains a concern.

"I shall now briefly set out the rationale for these decisions. The inflation-growth balance is moving favourably. Growth is holding firm. Inflation continues to moderate, mainly driven by the core component, which reached its lowest level in the current series in April 2024.&nbsp;The deflation in fuel prices is ongoing.&nbsp;Food inflation, however, remains elevated," said RBI Governor Shaktikanta Das.

The governor said robust economic growth continues to give the central bank space to focus on bringing down inflation.

However, apart from food inflation, the governor also warned about global uncertainty as a cause for concern.

"The Indian economy exhibits strong fundamentals, together with financial stability and positive growth momentum. Nevertheless, we need to remain vigilant in an unsettled global environment."

Still, investors will view any correction in Indian markets as an opportunity to buy.

What can you expect from Indian stocks this week after rallying to all-time highs? On Friday, Indian stocks rallied significantly to all-time highs after tanking nearly $400 billion on Tuesday, which marked the worst session in four years.

What can you expect from Indian stocks this week after rallying to all-time highs? On Friday, Indian stocks rallied significantly to all-time highs after tanking nearly $400 billion on Tuesday, which marked the worst session in four years. After the swearing-in ceremony of Prime Minister Narendra Modi and 73 ministers, the new government's resolve in growth policies will be in focus. Foreign investors will turn their attention to the budget, which is pegged as an important event that will define Modi 3.0's resolve to push through growth policies and fiscal discipline plans. After an eventful week, investors are likely to remain confident in the Reserve Bank of India's robust growth outlook. Last week, the blue-chip Sensex index first hit record highs on Monday and then breached that level on Friday. During Friday's session, the Sensex index rose to a record high of 76,795 and closed over 1,600 points at a new all-time high of 76,693.36. The stock recovery after the rout on Tuesday has been a remarkable turnaround. The broader Nifty 50 index gained over two per cent, ending at 23,290. Now, the focus turns to this week to see if the index can maintain that momentum and hit new highs on a better growth outlook. RBI's robust growth outlook India is the fastest-growing major economy, and the RBI's projections show the country will continue to be a rising star. While the central bank kept rates unchanged for the eighth consecutive time, the growth forecast for the current fiscal year was upgraded to 7.2 per cent from 7.0 per cent previously. However, the central bank left its projections for inflation at 4.5 per cent. While the RBI governor was upbeat on growth, elevated food inflation remains a concern. "I shall now briefly set out the rationale for these decisions. The inflation-growth balance is moving favourably. Growth is holding firm. Inflation continues to moderate, mainly driven by the core component, which reached its lowest level in the current series in April 2024. The deflation in fuel prices is ongoing. Food inflation, however, remains elevated," said RBI Governor Shaktikanta Das. The governor said robust economic growth continues to give the central bank space to focus on bringing down inflation. However, apart from food inflation, the governor also warned about global uncertainty as a cause for concern. "The Indian economy exhibits strong fundamentals, together with financial stability and positive growth momentum. Nevertheless, we need to remain vigilant in an unsettled global environment." Still, investors will view any correction in Indian markets as an opportunity to buy.

After record rally, Indian stocks in focus

Investors will watch the Federal Reserve's meeting this week for clues on the central bank's view on rate cuts.

Broadly, the Fed is expected to keep policy rates on hold for a seventh consecutive meeting. However, there needs to be more certainty in officials' rate projections.

On Wednesday, US Fed officials will update their interest rate forecasts for the first time in three months, giving investors more information on the Fed's resolve to cut interest rates.

The central bank raised the benchmark federal funds rate by more than five percentage points starting in March 2022. Since July last year, they have kept the cost of borrowing at its highest level in twenty years.

Rate cuts anytime soon?

Over 40% of economists in a Bloomberg survey called the closely watched "dot plot" to show two rate cuts this year. A similar number of economists in the survey think it will show only one cut or none.

In the past few weeks, a host of Fed policymakers have said that they don't think it's necessary to cut rates right now.

The reason is that inflation is still high, and growth is expected to be strong.

However, since the previous Fed meeting, the latest growth indicators have consistently surprised to the downside, and inflation data have also met expectations.

The Fed's preferred measure of inflation was 2.7% in the year ended April, compared to the central bank's 2% target. Data released on Friday showed a surge in payrolls last month and accelerating wages, prompting traders to dial back expectations on rate cuts this year.

"Another very strong jobs report has cast further doubt on the prospect of interest rate cuts this year," said James Knightley, Chief International Economist at ING.

"In terms of what this means for the Fed next week - well, it confirms that the Fed will be pushing back rate cut projections from 3 cuts this year and 3 cuts next year to most probably 2 cuts this year and 4 next, but we can't rule them out saying just one for this year," added Knightley.

Growing divergence?

The Bank of Canada became the first G7 country to cut rates in this current cycle, followed by the European Central Bank.

While the ECB rate cut before the Fed is nothing short of historic, the real question is whether there is a growing monetary policy divergence or if this will only be a short-term situation.

The Fed is closing in on a rate cut, but more importantly, global inflation is still elevated, and it is at risk from the chaos in West Asia. The war on the edge of Europe is not helping either.

Will the BOC and the ECB be able to follow through with more rate cuts this year?

"The ECB's June decision was sewn up weeks ago and long before the past few weeks' less-than-helpful wage and inflation data releases. The Bank is visibly much more confident in the visions coming from its inflation crystal ball. But hindsight would say the ECB was too quick to lock in expectations for a rate cut this week. And judging from President Lagarde's words, it's a tactic she isn't keen to repeat as we go into the summer," said Carsten Brzeski, Global Head of Macro at ING.

"Markets are slowly taking notice. Investors seem less convinced about where the easing cycle goes from here," added Brzeski.

Major global central banks are miffed in making a mistake again after the high inflation is "transitory" narrative back in 2020.

The final leg of the inflation fight is taking longer than expected, with the Fed wanting to feel rock-solid in its outlook for price pressures to fall to its target.

Investors will watch the Federal Reserve's meeting this week for clues on the central bank's view on rate cuts. Broadly, the Fed is expected to keep policy rates on hold for a seventh consecutive meeting.

Investors will watch the Federal Reserve's meeting this week for clues on the central bank's view on rate cuts. Broadly, the Fed is expected to keep policy rates on hold for a seventh consecutive meeting. However, there needs to be more certainty in officials' rate projections. On Wednesday, US Fed officials will update their interest rate forecasts for the first time in three months, giving investors more information on the Fed's resolve to cut interest rates. The central bank raised the benchmark federal funds rate by more than five percentage points starting in March 2022. Since July last year, they have kept the cost of borrowing at its highest level in twenty years. Rate cuts anytime soon? Over 40% of economists in a Bloomberg survey called the closely watched "dot plot" to show two rate cuts this year. A similar number of economists in the survey think it will show only one cut or none. In the past few weeks, a host of Fed policymakers have said that they don't think it's necessary to cut rates right now. The reason is that inflation is still high, and growth is expected to be strong. However, since the previous Fed meeting, the latest growth indicators have consistently surprised to the downside, and inflation data have also met expectations. The Fed's preferred measure of inflation was 2.7% in the year ended April, compared to the central bank's 2% target. Data released on Friday showed a surge in payrolls last month and accelerating wages, prompting traders to dial back expectations on rate cuts this year. "Another very strong jobs report has cast further doubt on the prospect of interest rate cuts this year," said James Knightley, Chief International Economist at ING. "In terms of what this means for the Fed next week - well, it confirms that the Fed will be pushing back rate cut projections from 3 cuts this year and 3 cuts next year to most probably 2 cuts this year and 4 next, but we can't rule them out saying just one for this year," added Knightley. Growing divergence? The Bank of Canada became the first G7 country to cut rates in this current cycle, followed by the European Central Bank. While the ECB rate cut before the Fed is nothing short of historic, the real question is whether there is a growing monetary policy divergence or if this will only be a short-term situation. The Fed is closing in on a rate cut, but more importantly, global inflation is still elevated, and it is at risk from the chaos in West Asia. The war on the edge of Europe is not helping either. Will the BOC and the ECB be able to follow through with more rate cuts this year? "The ECB's June decision was sewn up weeks ago and long before the past few weeks' less-than-helpful wage and inflation data releases. The Bank is visibly much more confident in the visions coming from its inflation crystal ball. But hindsight would say the ECB was too quick to lock in expectations for a rate cut this week. And judging from President Lagarde's words, it's a tactic she isn't keen to repeat as we go into the summer," said Carsten Brzeski, Global Head of Macro at ING. "Markets are slowly taking notice. Investors seem less convinced about where the easing cycle goes from here," added Brzeski. Major global central banks are miffed in making a mistake again after the high inflation is "transitory" narrative back in 2020. The final leg of the inflation fight is taking longer than expected, with the Fed wanting to feel rock-solid in its outlook for price pressures to fall to its target.

All eyes on the Federal Reserve meeting

As we head into 2024, the dynamics of geopolitics are at the core of global markets. 
 
So far, America has imposed sanctions against countries to cut them off from the global payment systems and dollars. 
 
Many countries, including Russia, are looking at alternatives to the dollar. 
 
For a very long time, the US dollar has dominated international markets. It still does so, although, during the past 20 years, the US economy has produced a decreasing percentage of the world's production. 
 
Central banks are no longer keeping as much of the US dollar in reserves as they formerly did, even though the currency is still far more prevalent in international commerce, international debt, and non-bank borrowing than it is in the US share of trade, bond issuance, and international borrowing and lending. 
 
Dollar demand waning? 
 
The latest International Monetary Fund's (IMF) data shows a decline in the dollar's share in global central banks' foreign currency reserves.&nbsp; 
 
The data shows the dollar's share is down in the September quarter to the lowest since the final three months of last year. 
 
The extensive use of dollars in international commerce, particularly for commodities and energy, has helped the greenback over the years. 
 
The dollar's dominance among trade partners has allowed the US to sustain budget deficits and control funding costs by directing cash into US government bonds.&nbsp; 
 
Additionally, it helps US businesses since firms often find it less expensive to borrow money due to the extensive usage of dollars in international commerce, particularly for commodities and energy. 
 
The dollar has been the preferred reserve currency for most of the world's central banks.&nbsp; 
 
However, the dollar has progressively lost dominance since 2000, when its share was above 70%. &nbsp; 
 
The US currency's share is down to 59.2% in the September quarter, marking the lowest since it fell below 60% last year. 
 
The euro's share in the reserves fell slightly while the Japanese yen rose. The shares of the Chinese yuan, the British pound, the Australian and Canadian dollars, and the Swiss franc were changed only slightly. 
 
A group of "other currencies." including the rupee, rose in the previous quarter.&nbsp; 
 
What does it mean to global trade and currencies? 
 
This reflects the global mood towards the dollar and the US. 
 
Most countries are slowly but surely moving away from dollar-denominated trade.&nbsp; 
 
Instead, they seek to settle trade in their own currencies. India, for example, has set up a rupee-trade mechanism for trade settlements.&nbsp; 
 
China has also pushed for trade settlements in the yuan. These alternative trade settlement mechanisms are slowly gaining traction. 
 
But the dollar's share is still over 50%.&nbsp; 
 
Still, the shift away is clear and noticeable. 
 
Dollar lacks competition 
 
Despite a two-decade drop in its proportion of global foreign currency reserves, the US dollar is still utilised more than all other currencies combined. 
 
A new IMF working paper shows that the diminished significance of the US dollar has not been balanced by rises in the proportions of the other traditional reserve currencies - the euro, yen, and pound.&nbsp; 
 
Furthermore, even while the proportion of reserves kept in the renminbi has increased somewhat, this only makes up 25% of the recent move away from dollars, partially attributable to China's highly tight capital account.&nbsp; 
 
An update to the data in the IMF's working paper reveals that about one-third of the world's renminbi reserves were held by one nation, Russia. 
 
However, three-quarters of the shift away from dollars is accounted for by the currencies of smaller economies that haven't typically played a significant role in reserve portfolios, such as the South Korean won, the Swedish krona, and the Australian and Canadian dollars. 
 
The cost of employing credit derivatives to guarantee against default is a measure of economic risk premium, and a regression study of global reserve currency shares indicates that a greater premium deters a currency's position in global reserves.&nbsp; 
 
Holders prefer the currencies of nations with reputable governments, stable economies, and strong financial systems. 
 
So, it will take a long time for other currencies to be able to overshadow the greenback.

As we head into 2024, the dynamics of geopolitics are at the core of global markets. So far, America has imposed sanctions against countries to cut them off from the global payment systems and dollars.

As we head into 2024, the dynamics of geopolitics are at the core of global markets. So far, America has imposed sanctions against countries to cut them off from the global payment systems and dollars. Many countries, including Russia, are looking at alternatives to the dollar. For a very long time, the US dollar has dominated international markets. It still does so, although, during the past 20 years, the US economy has produced a decreasing percentage of the world's production. Central banks are no longer keeping as much of the US dollar in reserves as they formerly did, even though the currency is still far more prevalent in international commerce, international debt, and non-bank borrowing than it is in the US share of trade, bond issuance, and international borrowing and lending. Dollar demand waning? The latest International Monetary Fund's (IMF) data shows a decline in the dollar's share in global central banks' foreign currency reserves. The data shows the dollar's share is down in the September quarter to the lowest since the final three months of last year. The extensive use of dollars in international commerce, particularly for commodities and energy, has helped the greenback over the years. The dollar's dominance among trade partners has allowed the US to sustain budget deficits and control funding costs by directing cash into US government bonds. Additionally, it helps US businesses since firms often find it less expensive to borrow money due to the extensive usage of dollars in international commerce, particularly for commodities and energy. The dollar has been the preferred reserve currency for most of the world's central banks. However, the dollar has progressively lost dominance since 2000, when its share was above 70%. The US currency's share is down to 59.2% in the September quarter, marking the lowest since it fell below 60% last year. The euro's share in the reserves fell slightly while the Japanese yen rose. The shares of the Chinese yuan, the British pound, the Australian and Canadian dollars, and the Swiss franc were changed only slightly. A group of "other currencies." including the rupee, rose in the previous quarter. What does it mean to global trade and currencies? This reflects the global mood towards the dollar and the US. Most countries are slowly but surely moving away from dollar-denominated trade. Instead, they seek to settle trade in their own currencies. India, for example, has set up a rupee-trade mechanism for trade settlements. China has also pushed for trade settlements in the yuan. These alternative trade settlement mechanisms are slowly gaining traction. But the dollar's share is still over 50%. Still, the shift away is clear and noticeable. Dollar lacks competition Despite a two-decade drop in its proportion of global foreign currency reserves, the US dollar is still utilised more than all other currencies combined. A new IMF working paper shows that the diminished significance of the US dollar has not been balanced by rises in the proportions of the other traditional reserve currencies - the euro, yen, and pound. Furthermore, even while the proportion of reserves kept in the renminbi has increased somewhat, this only makes up 25% of the recent move away from dollars, partially attributable to China's highly tight capital account. An update to the data in the IMF's working paper reveals that about one-third of the world's renminbi reserves were held by one nation, Russia. However, three-quarters of the shift away from dollars is accounted for by the currencies of smaller economies that haven't typically played a significant role in reserve portfolios, such as the South Korean won, the Swedish krona, and the Australian and Canadian dollars. The cost of employing credit derivatives to guarantee against default is a measure of economic risk premium, and a regression study of global reserve currency shares indicates that a greater premium deters a currency's position in global reserves. Holders prefer the currencies of nations with reputable governments, stable economies, and strong financial systems. So, it will take a long time for other currencies to be able to overshadow the greenback.

Is the dollar's status as a global reserve currency at risk?

There is no respite for battered global supply chains. First, trade wars and then Covid-led restrictions disrupted global supply chains.

Now, it is the Israel-Hamas war that is distorting them further.

Oil tankers are idling, and cargo ships are rerouting around Africa as Red Sea shipping comes to a complete stop as violence related to the Israel-Hamas conflict threatens to destabilise the world economy.

Global energy prices have jumped as tensions escalated around the vital shipping route.

"It's more a risk factor that we had hoped had gone and had passed away, in that namely supply chain frictions is back in play. It depends now all on how long the tensions will last, on whether the Suez Canal will really be blocked for good," said Carsten Brzeski, Chief Economist At ING Markets.

"But if you just look at the numbers: the Suez Canal accounts for more than 10% of global trade, more than 30% of container transportation. So if this canal is really blocked, it means bad news for world trade, bad news for the global economy and bad news for inflation," added Brzeski.

Economic costs of Red Sea attacks

On Monday, two major European oil and gas companies said their tankers would steer out of the waters off the coast of Yemen, a necessary stop for ships that use the Suez Canal to connect Europe and Asia.

They follow prominent container shippers who left the region last week as Houthi rebels backed by Iran escalated their attacks in support of Hamas.

Businesses from BP to A.P. Moller-Maersk face longer trips.

More major firms have now decided to pause shipping through the Red Sea and instead use the longer and more expensive Cape of God route.

The disruption will weigh on firms that carry consumer products and commodities like coal, maise, and energy supplies.

Businesses that have decided to pause shipping through the Red Sea include CMA shipping, Euronav, Evergreen, Frontline, Happag-Lloyds, HMM, Maersk, MSC, Ocean Network Services and OOCL.

Gas prices in Europe rose by 13% in response to the clearest indication yet of an interruption in energy supplies since the start of the Gaza war.

Tuesday saw increases in Brent oil futures, which had risen as high as 3.9% on Monday.

While considerable wiggle room exists in the world's supply chains to accommodate the current stresses on capacity, the abrupt shutdown of the Suez Canal in 2021 demonstrated the networks' vulnerability when important linkages fail.

What is the world's response?

Countries are under pressure to respond as international trade comes under threat.

The US Secretary of Defence announced that the US and its allies, which include the UK, Canada, France, and others, had decided to form a naval task force to fend against assaults on ships in the area.

India, too, has deployed ships to support the global response.

Lloyd J. Austin, U.S. Secretary of Defense, said: "This is an international challenge that demands collective action."

The US Defence Secretary has called a ministers meeting to decide the next action.

However, it's more complex, as the region's Gulf allies have differing views on the best course of action.

No respite anytime soon

As Israeli warplanes continue to batter the shattered Gaza Strip, Yemen's Houthis pledged to resist a US-led naval expedition and continue striking Red Sea cargo in support of the Palestinian enclave's ruling Hamas organisation.

As major shipping firms are forced to reroute, Washington established a task group on Tuesday to protect Red Sea commerce, raising concerns about long-term disruptions to global trade.

Defying a US-led military campaign, the Houthis pledged to continue targeting Red Sea ships.

A little over 12% of all maritime traffic in the world travels via the Suez Canal and the Red Sea.

Since most Middle Eastern fuel is exported via the Strait of Hormuz, observers noted that the impact on the oil supply has been little thus far.

But shipping costs are sure to jump and add to inflation woes.

The sudden disruption in global supply chains added to the uncertainty when the world's major central banks look at a return to normalising monetary policy.

"If it's just short-lived, consumers won't notice anything, maybe, except for higher energy prices. It's going to be temporary," said ING Markets' Brzeski.

"If it lasts longer, we will see that inflation goes up again, not at the same magnitude as we had it in 2021. But clearly, we would then have a completely new narrative, no longer the narrative that inflation is on its way down but that inflation will rebound in the first month of 2024," he added.

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There is no respite for battered global supply chains. First, trade wars and then Covid-led restrictions disrupted global supply chains. Now, it is the Israel-Hamas war that is distorting them further.

There is no respite for battered global supply chains. First, trade wars and then Covid-led restrictions disrupted global supply chains. Now, it is the Israel-Hamas war that is distorting them further. Oil tankers are idling, and cargo ships are rerouting around Africa as Red Sea shipping comes to a complete stop as violence related to the Israel-Hamas conflict threatens to destabilise the world economy. Global energy prices have jumped as tensions escalated around the vital shipping route. "It's more a risk factor that we had hoped had gone and had passed away, in that namely supply chain frictions is back in play. It depends now all on how long the tensions will last, on whether the Suez Canal will really be blocked for good," said Carsten Brzeski, Chief Economist At ING Markets. "But if you just look at the numbers: the Suez Canal accounts for more than 10% of global trade, more than 30% of container transportation. So if this canal is really blocked, it means bad news for world trade, bad news for the global economy and bad news for inflation," added Brzeski. Economic costs of Red Sea attacks On Monday, two major European oil and gas companies said their tankers would steer out of the waters off the coast of Yemen, a necessary stop for ships that use the Suez Canal to connect Europe and Asia. They follow prominent container shippers who left the region last week as Houthi rebels backed by Iran escalated their attacks in support of Hamas. Businesses from BP to A.P. Moller-Maersk face longer trips. More major firms have now decided to pause shipping through the Red Sea and instead use the longer and more expensive Cape of God route. The disruption will weigh on firms that carry consumer products and commodities like coal, maise, and energy supplies. Businesses that have decided to pause shipping through the Red Sea include CMA shipping, Euronav, Evergreen, Frontline, Happag-Lloyds, HMM, Maersk, MSC, Ocean Network Services and OOCL. Gas prices in Europe rose by 13% in response to the clearest indication yet of an interruption in energy supplies since the start of the Gaza war. Tuesday saw increases in Brent oil futures, which had risen as high as 3.9% on Monday. While considerable wiggle room exists in the world's supply chains to accommodate the current stresses on capacity, the abrupt shutdown of the Suez Canal in 2021 demonstrated the networks' vulnerability when important linkages fail. What is the world's response? Countries are under pressure to respond as international trade comes under threat. The US Secretary of Defence announced that the US and its allies, which include the UK, Canada, France, and others, had decided to form a naval task force to fend against assaults on ships in the area. India, too, has deployed ships to support the global response. Lloyd J. Austin, U.S. Secretary of Defense, said: "This is an international challenge that demands collective action." The US Defence Secretary has called a ministers meeting to decide the next action. However, it's more complex, as the region's Gulf allies have differing views on the best course of action. No respite anytime soon As Israeli warplanes continue to batter the shattered Gaza Strip, Yemen's Houthis pledged to resist a US-led naval expedition and continue striking Red Sea cargo in support of the Palestinian enclave's ruling Hamas organisation. As major shipping firms are forced to reroute, Washington established a task group on Tuesday to protect Red Sea commerce, raising concerns about long-term disruptions to global trade. Defying a US-led military campaign, the Houthis pledged to continue targeting Red Sea ships. A little over 12% of all maritime traffic in the world travels via the Suez Canal and the Red Sea. Since most Middle Eastern fuel is exported via the Strait of Hormuz, observers noted that the impact on the oil supply has been little thus far. But shipping costs are sure to jump and add to inflation woes. The sudden disruption in global supply chains added to the uncertainty when the world's major central banks look at a return to normalising monetary policy. "If it's just short-lived, consumers won't notice anything, maybe, except for higher energy prices. It's going to be temporary," said ING Markets' Brzeski. "If it lasts longer, we will see that inflation goes up again, not at the same magnitude as we had it in 2021. But clearly, we would then have a completely new narrative, no longer the narrative that inflation is on its way down but that inflation will rebound in the first month of 2024," he added. WATCH WION LIVE HERE

Red Sea crisis weighs on already disrupted global supply chains

India hits out against the International Monetary Fund (IMF) for claiming that the central bank had interfered "excessively" in the foreign exchange market.

The IMF's report suggested that the Indian government was attempting to manipulate the value of the rupee.

What does the IMF's report show?

The Washington-based lender said that between December 2022 and October 2023, the rupee's value fluctuated within an extremely small range.

The report indicates that the central bank's involvement "likely exceeded levels necessary to address disorderly market conditions."

As a result, the IMF stated that it has reclassified India's foreign currency regime from a "floating" system to a "stabilised arrangement."

What's the difference?

In a floating system - a currency's value is determined by the foreign exchange market based on the demand and supply of the particular currency.

In contrast, in a stabilised arrangement or a fixed regime, a country's government, through its central bank, determines the currency rate.

But top Reserve Bank of India (RBI) officials have repeatedly stated that the bank intervenes in the currency market only to reduce volatility.

In reality, no country sits back and watches its currency take a roller-coaster ride. Almost every central bank intervenes.

How can they not? It's a question of economic stability and reducing the currency's volatility.

India's response

The IMF said India referred to the evaluation as "unjustified" and "strongly disagreed" with its report.

In its report, the Fund said: "The RBI strongly believes that such a view is incorrect as, in their view, it uses data selectively."

In 2022, the currency fell about 8%.

Between December 2022 and October 2023, the rupee lost around 2% against the US dollar.

However, the RBI rejected the IMF's assessment, calling the evaluation based on selective data sets referring to the Fund's report from December 2022 to October 2023.

The RBI said that the IMF is using data selectively.

India's central bank said that if the rupee's movement over two to five years is considered, then the assessment and allegation fall flat.

Forex reserves&nbsp;show a different story

Bloomberg estimates the RBI intervened in the currency market to the tune of $78 billion through those nine months.

Still, the nation's $604 billion foreign exchange reserves tell a different story.

Despite the intervention, India's import cover hovers close to 2021's all-time high of $642.5 billion.

IMF's outlook is not all bad

The IMF called India a bright spot in an otherwise gloomy global economic background.

However, the IMF's outlook must catch up with the RBI's growth projections for this year and next.

Still, the IMF predicts India will contribute more than 16 per cent of global growth.

The Fund said that was a result of economic changes in important areas like infrastructure and digitalisation, which have elevated India to a "star performer" among nations.

In addition, the IMF said in its annual report that attention be paid to restoring fiscal buffers, ensuring price stability, upholding financial stability, and boosting inclusive growth.

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India hits out against the International Monetary Fund (IMF) for claiming that the central bank had interfered "excessively" in the foreign exchange market. The IMF's report suggested that the Indian government was attempting to manipulate the value of the rupee.

India hits out against the International Monetary Fund (IMF) for claiming that the central bank had interfered "excessively" in the foreign exchange market. The IMF's report suggested that the Indian government was attempting to manipulate the value of the rupee. What does the IMF's report show? The Washington-based lender said that between December 2022 and October 2023, the rupee's value fluctuated within an extremely small range. The report indicates that the central bank's involvement "likely exceeded levels necessary to address disorderly market conditions." As a result, the IMF stated that it has reclassified India's foreign currency regime from a "floating" system to a "stabilised arrangement." What's the difference? In a floating system - a currency's value is determined by the foreign exchange market based on the demand and supply of the particular currency. In contrast, in a stabilised arrangement or a fixed regime, a country's government, through its central bank, determines the currency rate. But top Reserve Bank of India (RBI) officials have repeatedly stated that the bank intervenes in the currency market only to reduce volatility. In reality, no country sits back and watches its currency take a roller-coaster ride. Almost every central bank intervenes. How can they not? It's a question of economic stability and reducing the currency's volatility. India's response The IMF said India referred to the evaluation as "unjustified" and "strongly disagreed" with its report. In its report, the Fund said: "The RBI strongly believes that such a view is incorrect as, in their view, it uses data selectively." In 2022, the currency fell about 8%. Between December 2022 and October 2023, the rupee lost around 2% against the US dollar. However, the RBI rejected the IMF's assessment, calling the evaluation based on selective data sets referring to the Fund's report from December 2022 to October 2023. The RBI said that the IMF is using data selectively. India's central bank said that if the rupee's movement over two to five years is considered, then the assessment and allegation fall flat. Forex reserves show a different story Bloomberg estimates the RBI intervened in the currency market to the tune of $78 billion through those nine months. Still, the nation's $604 billion foreign exchange reserves tell a different story. Despite the intervention, India's import cover hovers close to 2021's all-time high of $642.5 billion. IMF's outlook is not all bad The IMF called India a bright spot in an otherwise gloomy global economic background. However, the IMF's outlook must catch up with the RBI's growth projections for this year and next. Still, the IMF predicts India will contribute more than 16 per cent of global growth. The Fund said that was a result of economic changes in important areas like infrastructure and digitalisation, which have elevated India to a "star performer" among nations. In addition, the IMF said in its annual report that attention be paid to restoring fiscal buffers, ensuring price stability, upholding financial stability, and boosting inclusive growth. WATCH WION LIVE HERE

India hits out at IMF on "excessive" currency intervention comment

More and more data points to the fact that tight lending and monetary policy have peaked and are now effectively bringing down inflation.

But as major central banks prepare to announce decisions next week, the Federal Reserve and Bank of England won't want to support the recent surge in rate-cut expectations in financial markets.

On Friday, the Reserve Bank of India sounded 'hawkish' compared to predictions for hints of policy easing.

The reason is concerns over elevated food inflation.

The other reason is they don't want to falter again as they did in 2021 when they called surging inflation "transitory."

After six consecutive rate hikes between April 2022 and February this year, the Reserve Bank of India has kept monetary policy on hold.

The likelihood the central bank hints at rate cuts was factored in before today's decision and comments from Governor Shaktikanta Das.

But RBI more or less dashed those expectations by sounding hawkish in its assessment of inflation.

<a href="https://www.wionews.com/business-economy/reserve-bank-of-indias-hawkish-pause-keeps-households-on-edge-667508">Read about RBI's policy </a><a href="https://www.wionews.com/business-economy/reserve-bank-of-indias-hawkish-pause-keeps-households-on-edge-667508">here</a><a href="https://www.wionews.com/business-economy/reserve-bank-of-indias-hawkish-pause-keeps-households-on-edge-667508">.</a>

Governor Das said rate cuts were off the table.

The deputy chief economist for emerging markets at Capital Economics, Shilan Shah, said, "The economy is performing exceptionally well, which limits any immediate need for looser policy."

US: Pushback from the Fed

At the FOMC meeting next week, it is generally anticipated that the Federal Reserve will maintain the Fed funds target range at 5.25–5.5 per cent.

Key Federal Reserve officials actively support the theory that monetary policy is sufficiently tight to drive inflation sustainably down to 2 per cent&nbsp;in the upcoming months, as evidenced by softer activity, cooling labour data, and benign inflation prints.

James Knightley, Chief International Economist at ING Markets, said, "The bigger story is likely to be contained in the individual Fed member forecasts – how far will they look to back the market perceptions that major rate cuts are on their way?"

"We strongly suspect there will be a lot of pushback here," he added.

Global central banks want to be ahead of the curve after dismissing rising price pressures as "transitory" in 2021.

Back then, the world underestimated surging inflation and had to react more aggressively when price pressures soared to multi-decade highs globally.

But bets in recent months have increased for global interest rates to ease next year.

Still, central banks worldwide will be in pain to stave off those expectations and, at the same time, stay away from sounding the alarm bells.

"We think the Fed will eventually shift to a more dovish stance, but this may not come until late in the first quarter of 2024," said ING's Knightley.

"The US economy continues to perform well for now, and the jobs market remains tight. However, there is growing evidence that the Federal Reserve's interest rate increases and the associated tightening of credit conditions are starting to have the desired effect. We look for 150bp of rate cuts in 2024, with a further 100bp in early 2025," he added.

Bank of England to push back, too

With the "higher for longer" mantra that central banks have been hammering home for months, financial markets are quickly giving up.

The Bank of England (BoE) has yet to be as active with its market repricing.

However, the BoE is beginning to raise the alarm with three rate cuts already scheduled for 2024.

Recently, Governor Andrew Bailey stated that he is "against assumptions that we're talking about cutting interest rates".

Those remarks came after the Bank strengthened its guidance in November, indicating that it anticipated rates to remain restrictive for "an extended period of time".

The fact that the data is at least beginning to trend in the right direction will also satisfy the BoE.

Inflation in services fell short of the Bank's most recent estimate. The market's assumption that the BoE will start cutting rates later than its European counterparts may be accurate.

Could the Bank take a step further and declare in the announcement next week that markets are overpricing the 2024 easing?

It has yet to make a statement like this since November 2022, at a volatile period in the market.

"Policymakers may be uneasy about the recent repricing of UK rate expectations, but central banks globally have learned the hard way over the last couple of years that trying to predict and commit to future policy, with relative certainty, is a fool's game," said James Smith, Developed Markets Economist at ING.

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More and more data points to the fact that tight lending and monetary policy have peaked and are now effectively bringing down inflation. But as major central banks prepare to announce decisions next week, the Federal Reserve and Bank of England won't want to support the recent surge in rate-cut expectations in financial markets.

More and more data points to the fact that tight lending and monetary policy have peaked and are now effectively bringing down inflation. But as major central banks prepare to announce decisions next week, the Federal Reserve and Bank of England won't want to support the recent surge in rate-cut expectations in financial markets. On Friday, the Reserve Bank of India sounded 'hawkish' compared to predictions for hints of policy easing. The reason is concerns over elevated food inflation. The other reason is they don't want to falter again as they did in 2021 when they called surging inflation "transitory." After six consecutive rate hikes between April 2022 and February this year, the Reserve Bank of India has kept monetary policy on hold. The likelihood the central bank hints at rate cuts was factored in before today's decision and comments from Governor Shaktikanta Das. But RBI more or less dashed those expectations by sounding hawkish in its assessment of inflation. Read about RBI's policy here. Governor Das said rate cuts were off the table. The deputy chief economist for emerging markets at Capital Economics, Shilan Shah, said, "The economy is performing exceptionally well, which limits any immediate need for looser policy." US: Pushback from the Fed At the FOMC meeting next week, it is generally anticipated that the Federal Reserve will maintain the Fed funds target range at 5.25–5.5 per cent. Key Federal Reserve officials actively support the theory that monetary policy is sufficiently tight to drive inflation sustainably down to 2 per cent in the upcoming months, as evidenced by softer activity, cooling labour data, and benign inflation prints. James Knightley, Chief International Economist at ING Markets, said, "The bigger story is likely to be contained in the individual Fed member forecasts – how far will they look to back the market perceptions that major rate cuts are on their way?" "We strongly suspect there will be a lot of pushback here," he added. Global central banks want to be ahead of the curve after dismissing rising price pressures as "transitory" in 2021. Back then, the world underestimated surging inflation and had to react more aggressively when price pressures soared to multi-decade highs globally. But bets in recent months have increased for global interest rates to ease next year. Still, central banks worldwide will be in pain to stave off those expectations and, at the same time, stay away from sounding the alarm bells. "We think the Fed will eventually shift to a more dovish stance, but this may not come until late in the first quarter of 2024," said ING's Knightley. "The US economy continues to perform well for now, and the jobs market remains tight. However, there is growing evidence that the Federal Reserve's interest rate increases and the associated tightening of credit conditions are starting to have the desired effect. We look for 150bp of rate cuts in 2024, with a further 100bp in early 2025," he added. Bank of England to push back, too With the "higher for longer" mantra that central banks have been hammering home for months, financial markets are quickly giving up. The Bank of England (BoE) has yet to be as active with its market repricing. However, the BoE is beginning to raise the alarm with three rate cuts already scheduled for 2024. Recently, Governor Andrew Bailey stated that he is "against assumptions that we're talking about cutting interest rates". Those remarks came after the Bank strengthened its guidance in November, indicating that it anticipated rates to remain restrictive for "an extended period of time". The fact that the data is at least beginning to trend in the right direction will also satisfy the BoE. Inflation in services fell short of the Bank's most recent estimate. The market's assumption that the BoE will start cutting rates later than its European counterparts may be accurate. Could the Bank take a step further and declare in the announcement next week that markets are overpricing the 2024 easing? It has yet to make a statement like this since November 2022, at a volatile period in the market. "Policymakers may be uneasy about the recent repricing of UK rate expectations, but central banks globally have learned the hard way over the last couple of years that trying to predict and commit to future policy, with relative certainty, is a fool's game," said James Smith, Developed Markets Economist at ING. WATCH WION LIVE HERE

Global central banks pushing back on rate cut expectations; why?

India's central bank left its key repo rate unchanged at 6.5 per cent on Friday but warned elevated food inflation is still a concern.

After six consecutive rate hikes between April 2022 and February this year, the Reserve Bank of India has kept monetary policy on hold.

The likelihood the central bank hints at rate cuts was factored in before today's decision and comments from Governor Shaktikanta Das.

“Monetary policy will remain actively disinflationary,” said the governor.

But the RBI more or less dashed those expectations by sounding hawkish in its assessment of inflation.

Households hoping for some relief from already stretched budgets will, for now, have to deal with high borrowing costs.

RBI Policy: Inflation still a worry?

While inflation has eased for a few months, the central bank voiced concerns about food prices.

Retail inflation will remain above 5 per cent&nbsp;this fiscal year and next.

So, for consumers dealing with higher monthly payments towards their loans, any hope for them to come down anytime soon is just that - hope.

RBI Policy: Robust growth outlook

Despite a gloomy outlook for the global economy from the ongoing geopolitical unrest in West Asia and on the edge of Europe, the central bank sounded positive about the domestic economy.

Governor Das said India remains the fastest-growing major economy globally and has surprised everyone with its upside.

"The Indian economy presents a picture of resilience and momentum," according to Das.

"Growth remains resilient and robust, surprising everyone," he said.

After faster-than-anticipated growth in the July–September quarter, the central bank projects the economy to grow by 7 per cent&nbsp;in the current fiscal year, up from 6.5% in the previous year.

That helps the narrative for India's monetary policy on hold for longer as the country's bane for decades - supply-driven high inflation - still weighs on central bank decisions.

The deputy chief economist for emerging markets at Capital Economics, Shilan Shah, said, "The economy is performing exceptionally well, which limits any immediate need for looser policy."

RBI Governor said the inflation outlook, however, remains uncertain. He added that the near-term outlook is "masked by risks to food inflation."

On policy easing, Das said "loosening" was off the table, at the moment.

RBI Policy:&nbsp;Ahead of the curve?

The RBI wants to be ahead of the curve after dismissing rising price pressures as "transitory" in 2021, similar to reactions from major global central banks back then.

The world underestimated surging inflation and had to react more aggressively when price pressures soared to multi-decade highs globally.

But bets in recent months have increased for global interest rates to ease next year.

The RBI's tone suggested otherwise and pushed back on expectations for a rate cut cycle to later than earlier.

RBI Policy: What does it mean for consumers?

Clearly, the RBI's plans and commentary suggest there will be no respite from higher borrowing costs, especially for those with home loans.

The central bank's aggressive rate hikes pushed up equated monthly instalments for borrowers already dealing with higher prices of almost everything.

For some, the loan duration was increased by about five years.

Even if the RBI does start to cut rates at some point, the translation to lending costs will take longer.

Indeed, usually, banks pass on any change in rates on the up almost immediately to consumers but take longer to transmit any easing in interest rates.

WATCH WION LIVE HERE

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India's central bank left its key repo rate unchanged at 6.5 per cent on Friday but warned elevated food inflation is still a concern. After six consecutive rate hikes between April 2022 and February this year, the Reserve Bank of India has kept monetary policy on hold.

India's central bank left its key repo rate unchanged at 6.5 per cent on Friday but warned elevated food inflation is still a concern. After six consecutive rate hikes between April 2022 and February this year, the Reserve Bank of India has kept monetary policy on hold. The likelihood the central bank hints at rate cuts was factored in before today's decision and comments from Governor Shaktikanta Das. “Monetary policy will remain actively disinflationary,” said the governor. But the RBI more or less dashed those expectations by sounding hawkish in its assessment of inflation. Households hoping for some relief from already stretched budgets will, for now, have to deal with high borrowing costs. RBI Policy: Inflation still a worry? While inflation has eased for a few months, the central bank voiced concerns about food prices. Retail inflation will remain above 5 per cent this fiscal year and next. So, for consumers dealing with higher monthly payments towards their loans, any hope for them to come down anytime soon is just that - hope. RBI Policy: Robust growth outlook Despite a gloomy outlook for the global economy from the ongoing geopolitical unrest in West Asia and on the edge of Europe, the central bank sounded positive about the domestic economy. Governor Das said India remains the fastest-growing major economy globally and has surprised everyone with its upside. "The Indian economy presents a picture of resilience and momentum," according to Das. "Growth remains resilient and robust, surprising everyone," he said. After faster-than-anticipated growth in the July–September quarter, the central bank projects the economy to grow by 7 per cent in the current fiscal year, up from 6.5% in the previous year. That helps the narrative for India's monetary policy on hold for longer as the country's bane for decades - supply-driven high inflation - still weighs on central bank decisions. The deputy chief economist for emerging markets at Capital Economics, Shilan Shah, said, "The economy is performing exceptionally well, which limits any immediate need for looser policy." RBI Governor said the inflation outlook, however, remains uncertain. He added that the near-term outlook is "masked by risks to food inflation." On policy easing, Das said "loosening" was off the table, at the moment. RBI Policy: Ahead of the curve? The RBI wants to be ahead of the curve after dismissing rising price pressures as "transitory" in 2021, similar to reactions from major global central banks back then. The world underestimated surging inflation and had to react more aggressively when price pressures soared to multi-decade highs globally. But bets in recent months have increased for global interest rates to ease next year. The RBI's tone suggested otherwise and pushed back on expectations for a rate cut cycle to later than earlier. RBI Policy: What does it mean for consumers? Clearly, the RBI's plans and commentary suggest there will be no respite from higher borrowing costs, especially for those with home loans. The central bank's aggressive rate hikes pushed up equated monthly instalments for borrowers already dealing with higher prices of almost everything. For some, the loan duration was increased by about five years. Even if the RBI does start to cut rates at some point, the translation to lending costs will take longer. Indeed, usually, banks pass on any change in rates on the up almost immediately to consumers but take longer to transmit any easing in interest rates. WATCH WION LIVE HERE

RBI policy: Reserve Bank of India's hawkish pause keeps households on edge

The US Federal Reserve is moving decisively away from ultra-aggressive tightening policy into a wait-and-watch mode, with the latest language from the policymakers suggesting a clear caution in their tone.

From behind the curve in 2021, when the Fed called the surge in inflation as 'transitory' to 'more rate hikes needed' as recent as last month, the journey of the US central bank mirrors the global policy path over the last two years.

With inflation showing clear signs of easing, the Fed looks to take its pedal off the accelerator.

History, perception &amp; expectations

Historically, a rate-hike cycle follows a short pause in the policy path before interest rates are cut.

But, this is where experts are divided.

While one section of economists and analysts expect policy to stay on hold until the second half of next year, an equal number of them predict the central bank will bring its knife out in the April-June quarter.

The reason for the divide is inflation expectations.

Easing inflation calls for a pause in rate hikes, but the triggers of elevated price pressures over the past year are still at play.

Geopolitics-driven disruption to global supply chains, rising cost of living and no signs of international crude prices cooling anytime soon.

So, with the recipe for inflation surge still intact, the question of central banks 'behind the curve' narrative gains traction.

Damned if they do, damned if they don't

Global central banks have had a tough balancing act over the past two years - managing surging price pressures and slowing economic activity simultaneously.

While what they have done is commendable at a time when external factors, including the Russia-Ukraine war, influenced policy decisions, the real question is: Are central banks responding after the events rather than being proactive?

Broadly - the expectations now point to an end to rate-hike cycles, with most major central banks predicted to move into a pause mode.

Bets are also piling up for rate cuts in 2024, but the hesitation and uncertainty reflect past mistakes.

Will the beginning of 2024 be a decisive moment to welcome a shift in policy path, or will we have more of the same?

Households would hope central bank policies support their purses, and businesses would want their borrowing costs lowered.

The next phase of the monetary cycle is filled with the same sentiment - dilemma.

The US Federal Reserve is moving decisively away from ultra-aggressive tightening policy into a wait-and-watch mode, with the latest language from the policymakers suggesting a clear caution in their tone.

The US Federal Reserve is moving decisively away from ultra-aggressive tightening policy into a wait-and-watch mode, with the latest language from the policymakers suggesting a clear caution in their tone. From behind the curve in 2021, when the Fed called the surge in inflation as 'transitory' to 'more rate hikes needed' as recent as last month, the journey of the US central bank mirrors the global policy path over the last two years. With inflation showing clear signs of easing, the Fed looks to take its pedal off the accelerator. History, perception & expectations Historically, a rate-hike cycle follows a short pause in the policy path before interest rates are cut. But, this is where experts are divided. While one section of economists and analysts expect policy to stay on hold until the second half of next year, an equal number of them predict the central bank will bring its knife out in the April-June quarter. The reason for the divide is inflation expectations. Easing inflation calls for a pause in rate hikes, but the triggers of elevated price pressures over the past year are still at play. Geopolitics-driven disruption to global supply chains, rising cost of living and no signs of international crude prices cooling anytime soon. So, with the recipe for inflation surge still intact, the question of central banks 'behind the curve' narrative gains traction. Damned if they do, damned if they don't Global central banks have had a tough balancing act over the past two years - managing surging price pressures and slowing economic activity simultaneously. While what they have done is commendable at a time when external factors, including the Russia-Ukraine war, influenced policy decisions, the real question is: Are central banks responding after the events rather than being proactive? Broadly - the expectations now point to an end to rate-hike cycles, with most major central banks predicted to move into a pause mode. Bets are also piling up for rate cuts in 2024, but the hesitation and uncertainty reflect past mistakes. Will the beginning of 2024 be a decisive moment to welcome a shift in policy path, or will we have more of the same? Households would hope central bank policies support their purses, and businesses would want their borrowing costs lowered. The next phase of the monetary cycle is filled with the same sentiment - dilemma.

What next: US Federal Reserve on the cusp of policy change

Author

Zee News Rajasthan

Editor

Rahul Karunakar

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