MPCminutesandavianallegories

Last Thursday we had written about the minutes of the FOMC meeting which was held in the last week of January. Yesterday the minutes of the RBI MPC meeting were released. The meeting took place in the first week of February with the unanimous call to hold the interest rate steady and remain accommodative on liquidity for as long a period as it is deemed necessary to revive growth on a durable basis. All these policy minutes on whether FOMC or MPC which were released after a lag of some days of policy announcements, give a peek into the thinking process of each policy maker and the possible decision levers which he or she weighed upon while delivering the vote. The aggregation of thoughts gets communicated on the policy day while the dissection is only possible while parsing the minutes. Over a period of time markets assigns avian monikers like hawk or dove to particular members highlighting their thought process.

As the markets are a constantly revving and humming aggregating machines, the expectations about each of the committee members is also quickly assimilated. Interesting bit to ponder here is that what will constitute a market moving information in that case. Only when a hawk shows a dovish streak or vice versa markets take note, and this reflects that in a change in prices. Markets also discount the possibility that the minutes differ in tone from the statement released on the policy day. It is well-nigh possible that the concern regarding inflation (or growth) is much more pronounced amongst the members than what was reflected in the statement.    

Parsing through the released minutes the following conclusions can be made. The sentiments are in line with the ones conveyed during the statement on February 5^th. The constant references to the outlook and expectation surveys, high frequency indicators etc highlight a data driven approach and will give markets a comfort regarding the stability of approach. As the market constantly watches these indicators itself, it can reconfigure the prices with each incoming data convincingly. The overall narrative reflects that the committee is now looking at the post pandemic scenario. How to bring the economy back to the pre pandemic output level is the central thought rather than the reoccurrence of second wave of the pandemic. The inflation also appears to be in a comfortable zone as the members expect plentiful food output taming the volatile food inflation portion. The core inflation is also expected to remain benign as the bottlenecks in supply chain open up.

The 10-year benchmark bond is currently trading at 6.19 mostly unchanged from yesterday. The Indian Rupee trades at 72.34 in the opening today. Indian equities had a rough day yesterday. On the global scene, the Dollar Index depreciated and is now trading around 90 which is an important level to watch out for. The 10-year US yields are trading mostly unchanged at around 1.37. Markets are now looking at the congressional testimony of Jerome Powell due this week. The expectations again are that full commitment to the easy liquidity will be reaffirmed. Jerome Powell is now in his fourth year as Fed chief and his term comes to an end early next year. As he was the pick of the last Republican government, whether or not he will be replaced by the current Democrat dispensation will be one thread which will gain momentum in the coming days. The potential candidates then again will be judged on which bird they resemble the most i.e. a hawk, a dove or an owl!