Komal Sri-Kumar, the president of Sri-Kumar International Methods, believes world central banks may quickly face an vital “credit score occasion” after swiftly elevating charges, with Credit score Suisse’s monetary well being a doable contender.
“I believe the Federal Reserve goes to must face the results of a credit score occasion” if it have been to happen, Komal Sri-Kumar instructed CNBC’s “Squawk Field Asia” on Monday. “One thing goes to interrupt.”
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“This will or will not be a Lehman second,” he mentioned when requested about Credit score Suisse and referring to the collapse of Lehman Brothers in 2008, which triggered a string of huge Wall Road bailouts and a subsequent monetary disaster.
Over the weekend, a number of media retailers reported that Credit score Suisse sought to assuage traders’ issues over its monetary well being — the Swiss financial institution reportedly contacted its greatest purchasers after its credit score default swaps rose sharply.
CDSs are basically insurance coverage bets in opposition to defaults and a credit score occasion refers to a detrimental and sudden change within the borrower’s capacity to repay its debt.
A protracted-time critic of the Fed’s method to the rise of costs, Sri-Kumar mentioned the newest occasions surrounding Credit score Suisse reveals the “actual hazard of getting miscalculated inflation for such a very long time.”
“They’re making an attempt to make up for it by doing every thing in a rush,” he mentioned, referring to the Fed’s continued hawkish coverage and pledge to proceed mountain climbing rates of interest to tamp down on inflation.
Within the Fed’s newest financial coverage assembly in September, the central financial institution raised its benchmark charge by three-quarters of a proportion level and indicated it is going to hold elevating charges properly above the present degree.
Sri-Kumar mentioned such makes an attempt at controlling inflation is harmful for markets worldwide.
“It carries an unlimited quantity of threat to the worldwide system by way of what the varied central banks are doing,” he mentioned.
The newest experiences of Credit score Suisse’s actions to calm involved traders may level to an eventual shift within the Fed’s path, mentioned John Vail, chief world strategist at Nikko Asset Administration.
“The silver lining at finish of this era, is the truth that central banks will in all probability begin to relent a while as each inflation is down and monetary situations worsen dramatically,” he mentioned on CNBC’s “Squawk Field Asia” Monday.
“I do not suppose it is the tip of the world, but it surely may get scary for the following quarter or so,” he mentioned.
Correction: The headline and textual content of this story has been up to date to precisely replicate Komal Sri-Kumar’s feedback on Credit score Suisse.
