Finance Minister Nirmala Sitharaman on Tuesday asked market regulator SEBI to be prepared for a possible market turbulence on account of US Fed actions.

Addressing the SEBI Board members as part of the customary post-Budget interactions, Sitharaman also urged SEBI to take further steps to reduce compliance burden, reduce cost of market intermediation and take measures to develop the corporate bond market and develop green bond market in the context of increasing focus on ESG investment.

Sitharaman’s advice to SEBI to prepare for the likely market turbulence is significant as pressure is mounting on the US Fed to front-load more of its planned removal of accommodation given the recent surprise to the upside on inflation. 

The consumer price inflation for January in US came in at 7.5 per cent. The US is now seeing the highest inflation in the last forty years and this has prompted the equity markets there to tilt in expectations of a 0.5 percentage point increase in interest rates by the US Fed at its March meeting.

Market is keenly watching to see how the US central bank will begin reducing its nearly $9 trillion in asset holdings, which had doubled during the coronavirus pandemic. 

The US Fed has already announced its intent to buy $20 billion more of treasuries over the next month along with $28 billion in mortgage backed securities and close the program in March. 

Next generation reforms

During the interaction, Sitharaman stressed the need for the regulator to initiate next generation of reforms to improve ease of doing business. 

The event was also attended by Bhagwat Kishanrao, Minister of State for Finance besides the top Secretaries and Chief Economic Advisor V Anantha Nageswaran.

The top secretaries who attended the meeting are TV Somanathan, Finance Secretary and Secretary (Expenditure), Ajay Seth, Secretary, Department of Economic Affairs, Tarun Bajaj, Secretary, Department of Revenue, Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM) and Rajesh Verma, Secretary, Ministry of Corporate Affairs.