The popular characterization of the Fed policy action as a ‘put’ is analogous to the manner in which a Wall Street trader decides to place a put option on the market. The Fed is behaving in much the same way: many reckon it is waiting to see how far the financial markets will tumble before it intervenes with an interest rate cut to support valuations. The Fed action — or all the speculative twaddle around the anticipated event — has started to spook central banks around the world. It is this exogenous factor that could play havoc with the financing of India’s capital account deficit and choke off access to cheap loans from overseas markets at a time when the RBI is grappling with a full-blown crisis in the shadow banking sector. If an NBFC flounders, it could lead to the loss of 2.7 per cent of core capital and the failure of one bank.

Source: The Telegraph July 02, 2019 03:58 UTC