Central banks predict lower growth, markets love it.

The Dow Jones Industrial Average rose by 216.84 points yesterday, followed by the Bombay Stock Exchange Index the Sensex rising by about 60 points this morning. After falling to 71.76 to the dollar in February the rupee has strengthened to around 68.64 this morning. In January, experts were predicting that the rupee will fall to 75 to the dollar this year on higher crude oil prices, uncertainty on Brexit and continued tightening by the Federal Reserve in the US. Cuts in oil output by OPEC, and a fall in US import of oil from Iran and Venezuela has led to crude oil prices rising by almost a third this year. The US government predicts that Brent crude will average $63 per barrel in 2019, which should be comfortable. Foreign Portfolio Investors (FPIs) "have been buying heavily in cash and derivatives  markets" in India. They have bought Rs 270 billion worth of local stocks this month. Goldman Sachs has changed its stance to 'overweight' on the Indian market, which means it is recommending buying Indian stocks. It predicts that the National Stock Exchange index the Nifty will increase to 12,500 from around 11,500 at present. Why the euphoria in stock markets? Because, at a two day meeting this week, the Federal Reserve said that interest rate will not be raised this year. "The Fed also said that it will slow the monthly reduction of US Treasury bonds from $30 billion to $15 billion from May onwards ending in September." Fund managers are now sure that there will be excess liquidity in the US and so they are investing in shares to increase returns for their investors. Strangely, the reason for the Fed's decision is that it is predicting a slowdown in the US economy, which should be bad news. The OECD has lowered its forecast for global growth in 2019, worse in Europe and the US, but also in emerging markets, including India. Unemployment is rising in India. Industrial output is not growing, capital spending is not expected to pick up and retail inflation is well within the limits set for the Reserve Bank (RBI), all of which indicate that the RBI should reduce interest rate, wrote Iyre and Jethmalani. Retail sales of cars and two-wheelers fell by 8% in February. About 9 million women lost their jobs last year and the male workforce shrank from 304 million in 2011-12 to 286 million in 2017-18. The government has stopped estimating the level of poverty in the country because there has been no reduction, wrote Prof Himanshu. And yet, optimism about finding jobs is rising among young people between 19 and 29 years of age. So, who is right? Central banks, which predict a lower growth, or the stock markets, which are celebrating?