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BFSI Chronicle, 11 Edition September2022
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MARKET VOLATILITY –

A MACRO

PERSPECTIVE

Inflation and Global Markets

As we set foot in latter part of the CY22, the ‘Inflation’
demon continues to roil the global capital markets.
Low interest rate regime coupled with the expansion
of balance sheets by the central banks, as also the
fiscal stimulus by governments across the globe to
counter the Covid-19 induced economic slowdown
saw its unintended consequence of creating bubbles
in the economies. Led by US Federal Reserve, the
policy rates were kept at zero, and in some instances
sub-zero (Europe) levels for quite long.

The apprehensions of simmering inflation, particularly
in the US, came to fore in the second half of 2021.
However, the Fed chose to brush this aside terming
the price rise as ‘transitory’ in nature leaving the Fed
behind the curve as no policy action was initiated
to arrest the price rise. Making things worse, Russia
invaded Ukraine in early part of 2022 sending shock
waves across the global financial markets. The war led
to catastrophic breakdown of supply chains resulting
in skyrocketing of the energy and commodity prices.
This supply shock added fuel to the fire of inflation,
and the US inflation accelerated to a 40 year high of 9.1
per cent in June’ 22. The US Federal Reserve, in a knee
jerk reaction, embarked on an aggressive rate hike
spree and raised Federal fund rate by 75 basis points
(bps) in June following a 50 bps hike in May 22- the
highest in over two decades. Inflationary expectations
Shri Dibyendu Mukherjee and anticipated rate hikes took the Dollar Index to
M.Com, MBA (Finance) record 109, and the 10-year US Treasury Note yield
Personal Finance Professional surged past the 3% mark (3.44 per cent on 13th June).

The Institute Of Cost Accountants Of India

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