What Hawkish and Dovish Mean in Monetary Policy and Trading

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What Hawkish and Dovish Mean in Monetary Policy and Trading

Hawkish and Dovish Mean: The US stock market has a significant impact on global markets. What happens in the US markets has a direct implication on the markets across the world. Whenever the Fed comes out with the policy, it has a direct impact on the global world. Similarly, when the Reserve Bank of India (RBI) comes out of policy, people wait for its commentary. The briefing of RBI or Fed consists of two types of commentaries; hawkish and dovish. In this article, you will learn about these terms.

There is often confusion in the minds of people regarding the term hawkish and dovish. Both the terms are equally important and during the monetary policy they can affect the currency of the country. When you read about the monetary policy of a country, it takes some time to understand its real meaning and whether it is hawkish or dovish.

In general hawkish and dovish reflect the general sentiment of the central bank of a country. Let us begin by learning the term Hawkish.

Definition of Hawkish

A hawkish stance is taken by the central bank when it wants to protect the economy against excessive inflation. Inflation means the overall rise in the price of goods and services. When the price of goods and services rises, people will be unable or unwilling to buy. This slows down the economy because there is no exchange of cash. Central banks usually do not want the economies to grow quickly because that would not be sustainable. Therefore, by being hawkish they try to keep the pace of the economy at reasonable levels by being hawkish or keeping a watch on the inflation. This stance generally involves raising the rate of interest.

Let us now learn the term Dovish

Definition of Dovish

Dovish is exactly the opposite of hawkish. This dovish stance is taken by the central bank when it does not expect the economy to grow and want to guard against the deflation i.e. the falling price of goods and services. This stance will help in giving a stimulus to the economy. The central bank lowers the interest rate in the dovish stance. With a lower interest rate, businesses can borrow money at a lower interest rate and expand their business. With lower interest rates the value of the currency may also decrease.

The interest rate of the country determines the rate at which the people of the country can borrow money from the banks. Like for example, when RBI cuts the interest rate, then the banks of the country will also reduce the lending rates and people can borrow money at lower costs. The interest rates have a trickle-down effect on the economy right from saving account yields, mortgage rates, credit card interest rates, etc.

The above points will help you in overcoming any confusion between hawkish and dovish. By learning these terms you will be able to understand the economy in a better way. The effect of these rates will have an ultimate effect on the stock markets of the country. To learn more about the stock market you can visit Trading Fuel. Trading Fuel is one of the leading providers of stock market education. All the information and knowledge on our page are free of cost. We ensure that the information on our page is the latest. By subscribing to our website you can not only become a successful investor but also a full-time intraday trader in the stock market.


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