Aug 8, 2007|
US Fed: Too long a breather
"The downside risks to growth have increased somewhat," quoted Ben Bernanke, as the US Federal Reserve maintained the short-term rates (called the federal funds rate; same as repo rate in India) at 5.25% at its monetary policy meeting yesterday. As a matter of fact, this was the ninth consecutive meeting where the Fed maintained its benchmark interest rate. The US central bank has also cited its concerns on a 'non-moderating' inflation in the economy, largely owing to record high fuel prices.
Moderate economic growth and volatile financial markets also found place in the Fed's 'statement of concerns', especially considering the subprime crisis that has emanated in the US and is showing signs of spreading across the global financial markets. Bernanke has also indicated that he expects the US economy "to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy."
The US Fed continues to emit confusing signals for global central bankers, who themselves are fighting hard to defeat the specter of rising inflation levels on the back of higher crude and food prices. The Indian central bank is also toeing this line of inflation control and growth management, as seen from the rise in cost of borrowings over the past few months. Bankers however feel that this rise in interest costs has the ability to dampen the economy's growth prospects as it can slow investment and consumption demand for capital. The effect has already been seen in the April to June 2007 quarter, wherein credit growth slowed down to 24% YoY in 1QFY08 from 29% YoY levels seen in the last fiscal.
We believe that there might be a blip on the investment horizon over the next six to eight months because of the increase in interest rates over the past few months. The latest norms for external commercial borrowings (ECBs) shall compound matters further, especially for mid and small size companies who plan to raise capital for growth. This breather will help the Indian economy fare better with money flowing into potentially more viable investments against the more fickle ones.
More Views on News
Jul 25, 2017
Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?
May 27, 2017
What happens when minority shareholders are short-changed in the normal course of business?
Feb 15, 2017
PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.
Aug 24, 2016
And here's your chance to claim a free copy of this book...
Aug 12, 2016
And Why India's demographic dividend could turn out to be a doubtful debt...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407