It’s the helicopter money, stupid! Markets edgy over liquidity freeze
ET CONTRIBUTORS|
Updated: Sep 23, 2017, 10.36 AM IST
By DK Aggarwal
Markets across the globe are cautious, as central banks are warning about overpriced assets, excessive borrowing and the need to raise interest rates in their respective economies.
It has been estimated that since the year 2008, cumulative government budget deficits in the economies such as the US, the UK, Japan and the euro zone have risen thanks to quantitative easing and fiscal stimulus, that total to around $34 trillion.
And as they see some green shoots (which is not clear) in their respective economies, almost all the major central banks – be it US Fed, the European Central Bank or the Bank of England – are preparing themselves to end years of super-cheap credit policies
Actually, they have pegged their monetary policies to unemployment and inflation growth. Now they are hopeful that unemployment levels in their respective economies would go down and inflation would go up to their targets. Though there is some improvement in unemployment rates, but inflation is yet to reach the target levels.
At the recent monetary policy meeting, the Bank of Japan kept its interest rates steady and at the same time maintained its view on the economy upbeat. It is hopeful that the economy would see solid recovery and this would gradually accelerate inflation towards its 2 per cent target without additional stimulus.
As the Fed prepares to begin paring the size of its $4.5 trillion balance sheet next month, it is expected that except India all the other major central banks would jump on to the bandwagon. However, it is believed that Fed should also consider an extension of the debt ceiling to December and the outlook for next year.
On the flip side, the Reserve Bank of India is expected to take the opportunity to take interest rates further down at its policy review meet on December 6, though not in the scheduled October meeting. The India growth story has been badly hit by demonetisation and uncertainty related to GST rollout amid slowdown in manufacturing activity. To note, India’s economic growth slipped to a three-year low of 5.7 per cent in the April-June quarter, slumping to a 13-quarter low.
Now, the attention of the market participants will inevitably be on when and how quickly the central banks will reduce the extraordinary support, which they have provided to the global financial system through massive bond purchases. And at home, market participant are expecting a rate cut, hoping that lower interest rate would result in demand and growth pickup in the economy and economic activities.
(The author is Chairman and MD, SMC Investments and Advisors. Views and recommendations given in this section are his own and do not represent those of ETMarkets.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)
Markets across the globe are cautious, as central banks are warning about overpriced assets, excessive borrowing and the need to raise interest rates in their respective economies.
It has been estimated that since the year 2008, cumulative government budget deficits in the economies such as the US, the UK, Japan and the euro zone have risen thanks to quantitative easing and fiscal stimulus, that total to around $34 trillion.
And as they see some green shoots (which is not clear) in their respective economies, almost all the major central banks – be it US Fed, the European Central Bank or the Bank of England – are preparing themselves to end years of super-cheap credit policies
Actually, they have pegged their monetary policies to unemployment and inflation growth. Now they are hopeful that unemployment levels in their respective economies would go down and inflation would go up to their targets. Though there is some improvement in unemployment rates, but inflation is yet to reach the target levels.
At the recent monetary policy meeting, the Bank of Japan kept its interest rates steady and at the same time maintained its view on the economy upbeat. It is hopeful that the economy would see solid recovery and this would gradually accelerate inflation towards its 2 per cent target without additional stimulus.
As the Fed prepares to begin paring the size of its $4.5 trillion balance sheet next month, it is expected that except India all the other major central banks would jump on to the bandwagon. However, it is believed that Fed should also consider an extension of the debt ceiling to December and the outlook for next year.
On the flip side, the Reserve Bank of India is expected to take the opportunity to take interest rates further down at its policy review meet on December 6, though not in the scheduled October meeting. The India growth story has been badly hit by demonetisation and uncertainty related to GST rollout amid slowdown in manufacturing activity. To note, India’s economic growth slipped to a three-year low of 5.7 per cent in the April-June quarter, slumping to a 13-quarter low.
Now, the attention of the market participants will inevitably be on when and how quickly the central banks will reduce the extraordinary support, which they have provided to the global financial system through massive bond purchases. And at home, market participant are expecting a rate cut, hoping that lower interest rate would result in demand and growth pickup in the economy and economic activities.
(The author is Chairman and MD, SMC Investments and Advisors. Views and recommendations given in this section are his own and do not represent those of ETMarkets.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)
