Perspective on Powell`s Jackson Hole speech and its likely impact on currency and bond markets by Mr. Vishal Goenka, Co-Founder of IndiaBonds.com
Below the Perspective on Powell’s Jackson Hole speech and its likely impact on currency and bond markets by Mr. Vishal Goenka, Co-Founder of IndiaBonds.com
“ Market is widely expecting that Fed Chair Powell will indicate a shallow rate cut in upcoming policy at Jackson Hole symposium. However, recent data and his standoff with Trump can lead to a surprising ‘data dependent’ Fed.
Indian government bonds have sold off post rate hikes and now speculated fiscal slippage on the GST tax rate cuts announced by PM at Independence Day speech. Sentiment has rapidly reversed from more RBI cuts to perhaps no more cuts as CPI inches up as well.
Largely Powell and US Fed move will really decide next course of action for RBI. On a neutral to hawkish comment by Powell Indian bonds will continue their sell off and INR would weaken. If Powell were to state of imminent rate cuts, it would be followed by USD weakens and will help cushion the recent pressure on INR. Action of rate cut by Fed in September will actually open the door for RBI to follow suit in face of slowing credit and economic growth.
In the medium term however - these are good levels to add duration to fixed income portfolio as we remain in a cyclical down cycle for interest rates and given the lack of transmission on recent cuts into the banking system, RBI may be inclined to cut rates again for the benefits to reach the real economy.”
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