Global central bankers must be feeling trapped between the devil and the deep blue sea. On the one hand, inflation is wreaking havoc on manufacturers and consumers. And on the other hand, there is not much clarity yet about the impact of the Omicron type of coronavirus. As a result, central banks have to take some tough decisions on waiving interest rates and incentives.
Swiss-based research house LGT said in a statement: “In view of a significant increase in inflationary pressures in the US, financial markets await indications of the pace at which bond purchases will be cut and the anticipated changes in interest rates next year.” Will happen.” Note on 14 December. However, the high level of uncertainty concerning Omicron could slow down the motivation of central banks, the note added.
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As inflationary pressures continue to mount in developed and emerging countries, its impact on monetary policy decisions will be closely watched by global investors. This week, a host of major central banks are meeting for the last time in 2021. The two-day meeting of the US Federal Reserve begins on December 14. The European Central Bank, Bank of England and Bank of Japan are also scheduled to meet this week.
“The market does not expect the Bank of England to move forward given the economic uncertainties created by Omicron. The US Federal Reserve faces various challenges. The pandemic savings in the US were among the highest in the world, and US consumers Saved the way Scrooge McDuck did. This required a supply of liquidity. “As savings are spent, the liquidity supply can rapidly decrease,” Paul Donovan, chief economist at UBS Group AG, said in his podcast on December 13. Is.”
More tightening and withdrawal of stimulus by global central banks has created trouble for equities. “Inflation and its impact on central bank policy will continue to have a significant impact on equity market volatility,” Saira Malik, CIO and Head of Equity at Nuveen Asset Management, said in her weekly market remarks on December 14. as a surprise, thereby making investors aware of a possible misstep in the timing or magnitude of contraction measures,” she said.
Back home, although retail inflation remained in the RBI’s tolerance band of 2-6%, economists caution about mounting pressure on retail inflation. Despite rising inflation and Omicron’s risks, Indian stocks continue to trade at a premium valuation to their emerging market counterparts.
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