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i360 Indices

UFI-05.06.22

ICICI Bank’s weekly UFI1 had a marginal moderation to 111.4 vs. 111.8 the week before. 

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05 Jun 22 09:00 AM

CENTRAL BANK ZONE

Reserve Bank of India

In the February policy meet, the MPC hiked policy repo by 25bps to 6.50% (4-2 vote). As on date, the cumulative rate hikes stood at 250bps since May policy. MPC kept the stance unchanged (4-2 vote)to “withdrawal of accommodation”

Inflation estimate was raised for FY24 by 10bps 5.3% from 5.2% earlier, while Q4FY23 projection was revised down by 20bps to 5.7%. Growth estimate was revised lower by 10bps to 6.4%. Lower consumption and exports will be a drag on growth next year

Going forward, we believe future trajectory of rates depends upon evolving inflation dynamics. RBI can go for a long pause and move to neutral stance from April onwards if inflation starts to ease which we do expect. However, two more rate hikes by the US Fed are a risk to this hypothesis and RBI may have to raise rates by another 25bps

Federal Reserve

In its policy meeting that concluded in February, the FOMC slowed the pace of rate hikes by 25bps taking the policy rate to the 4.50%-4.75% in response to weakening economic indicators and softening inflation pressures. The central bank provided a data-dependent guidance.

In the next policy meeting in March, we expect the central bank to raise the policy rate by 25bps while keeping the QT framework unchanged.

In our base-case, we assume a terminal rate of 5.25%-5.50%. However, the risk of the central bank not hiking in May remains in place especially if there is strong evidence of sharp softening in economic activity.

Bank of England

In the last policy meeting in February, the BoE raised the policy rate by 50bps while providing a data-dependent guidance. It also indicated that it expects inflation to undershoot sharply over the medium-term while risks of a recession remain firmly in place.

In the policy meeting in March, we see a further 25bps increase with a dovish guidance.

We see a terminal rate of 4.50% with the risk of further tightening if inflation pressures provide more persistent.

European Central Bank

The ECB raised the policy rate by 50bps taking the deposit rate to the 2.5% mark and pre-committed to raising rates by a further 50bps in March. The central bank indicated that the risks to both growth and inflation had become more balanced, although focus remains on tackling the inflation risk.

We expect a further 50bps in line with the guidance provided while inflation concerns are expected to remain in place.

We expect a terminal rate of 3.25% that will be achieved by the May policy meeting followed by a prolonged pause.

People's Bank of China

The PBOC delivered another 50 bps cut in the RRR in December, cut the one-year loan prime lending rate by 15 bps to 3.75% and cut the one-year medium-term loan facility rate by 10bps to 2.75% reflecting ongoing concerns about the real estate sector and the economy.

The PBOC has become increasingly concerned about inflation. Hence, we see limited possibility of further rate cuts and expect the central bank to move towards a liquidity neutral regime.

MARKET EVENTS CALENDAR

Events

17th Nov

Events

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View ALL Reports

TREASURER'S CORNER

Prasanna Balachander

Group Head – Global Markets – Sales, Trading and Research

India breaking out

15 Jan 24 03:05 PM Media Bytes

Growth, Monetary Policies & Markets

30 Oct 23 03:05 PM Media Bytes

India’s inflation and US Monetary policy outlook

13 Oct 23 03:05 PM Media Bytes

U.S. Economy to Remain Resilient

21 Sep 23 03:05 PM Media Bytes

Real Estate and Urbanisation to Boost Economy

15 Sep 23 03:05 PM Media Bytes

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IN-HOUSE VIEWS

Last updated: 4th February 2023

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