What RBI said about stock, currency markets in its policy review

NEW DELHI: Improving growth prospects and accommodative monetary policy stance of systemic central banks globally have lifted international financial markets of late, RBI said in its policy statement on Wednesday.

The central bank noted that financial markets have shown resilience to geopolitical events and have swiftly priced them in. "This has been reflected in the reinvigoration of reach for returns. Country-specific factors have modulated investor sentiment. Equity markets in most advanced economies have gained in Q2, surpassing past peaks in the US; boosted by corporate profits in Japan; and supported by easing political tensions and upbeat data in the case of the Euro area,” the statement said.

RBI noted that emerging market equities have put up a mixed show due to high valuations across Asia, but have been weaker in Latin America on softer commodity prices.

Bond yields in major advanced economies (AEs) have been largely rangebound, it said, adding that yields in emerging market economies (EMEs) have hardened in the few countries facing inflationary pressures and political uncertainties.

For commodity exporters, it said, there has been some recent decline.

“In the currency market, the dollar weakened in May after dovish guidance by the US Fed and unexpected political events. Since mid-May, the yen has shed its depreciating bias and appears to have gained safe haven appeal. EME currencies, which had depreciated on the strength of the US dollar, have steadied more recently on renewal of capital flows and risk-on investor appetite,” the central bank said.