As y'all may probably know I am from India and we have an entity named RBI to take care of things for us. In a complete shock to the nation our central bank decided to raise interest rates by 40 basis points pointing towards inflation as the reason for it
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I was really lucky to catch this meeting live. Have a look below.
Translation :-
Middle of the screen - It just shows how monthly payment of the 20 year mortgage of ₹50,00,000 will cost ₹2000 per month more due to this rate hike.
Bottom of the screen - Repo rate increased by 0.40.
The governor of RBI as explicitly stated inflation as the primary reason behind this rate hike.
Look at his statements below.
Impact ?
Now, how does this impact us ?
This was just a minor rate increase but it triggered a major selloff in the whole Indian market.
Our primary index Nifty fell -2%+ today which was already in a downtrend.
All of this has come just before the FOMC meeting of the Federal Reserve where a whopping 75 basis point interest hike is expected by the chairman Jerome Powell.
Mind you, this is just the tip of the iceberg and these central banks are expected to raise such interest rates every quarter. If you want a textbook term then it is called "Quantitative tightening".
Meaning, to control inflation central banks want to make it harder and harder for people to take loans. Hence, decreasing money supply in the market which in turn helps to curb inflation but all of these are just forecasts without guarantee. This tightening to a market which is already in a good downtrend due to Covid, war and supply chain issue could trigger a possible recession in the world.
As a matter of fact if you search for JP Morgan's verbatim they have given a deadline to this game which is 2023. Yes recession by 2023. Will it happen ? I don't know but IS IT POSSIBLE ? ABSOLUTELY....!!
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