All eyes on Rajan: Markets watch central bank actions for direction

By D K Aggarwal

As the earnings season gets over, stock markets the world over would watch actions of central banks to gauge further direction. Central bankers across the world flooded the markets with liquidity to spur growth in their respective economies, going even to the extent of negative interest rates.

On the flip side, the US Federal Reserve seems to be confident about the strength of its economy and feels it can brave a second interest rate hike.

On the other hand, Europe, Japan and China are still not confident of the health of their economies and are still resorting to stimulus to boost growth.

Undoubtedly, we are still much behind to see some kind of coordinated and concentrated efforts by the major central banks across the globe to tackle the problem of lower global economic growth.

Minutes of the March FOMC policy meeting indicate that the US Fed is preparing the ground for higher rates and it is largely expected that it probably will hike interest rates sooner than expected.

On the flip side, the Fed’s beige book found that labour markets are tightening despite ‘modest’ job growth. The survey showed that inflation is on track to rise back to the central bank’s 2 per cent target.

Back home, the Reserve Bank of India under the leadership of Raghuram Rajan has kept inflation as it primary focus. RBI has adopted the consumer price index as the key indicator of inflation, which is the global norm.

In the forthcoming money policy meeting scheduled for June 7, 2016, BRI is likely to keep interest rates unchanged.

India has witnessed two consecutive years of deficient monsoon. So a good monsoon would function as a positive supply-demand shock: boosting rural demand while helpfully lowering food price inflation.

(The author is Chairman and MD, SMC Investments and Advisors Ltd. Views and recommendations given in this section are his own and do not represent those of ETMarkets.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)