INSUBCONTINENT EXCLUSIVE:
By DK AggarwalPolicy makers across Asia, Europe and North America have reversed course and some of the major central banks have turned
The US Fed has signalled that it won’t go for a rate hike at least for a while, while the European Central Bank has cut inflation and
growth forecasts, and said it would not hike rates at least through the end of 2019
Recently, the Bank of Japan also strengthened its soft money stance with a pledge to keep interest rates low at least till the spring of
Central banks across the globe have/had pumped in huge amounts of liquidity into the financial system to support their respective economies
after the subprime crisis
To provide some respite to their economies, the US and the European Central Bank pumped in money and so did the Japanese central bank and
That made their respective economies addicted to easy liquidity
That resulted in the green shoots seen earlier in the global economy
But now those seem to be fading away mainly due to the trade war and other lingering concerns such as Brexit, Italy’s fiscal situation and
France’s Yellow Vests.
Subdued momentum across the euro area has signalled weakening economic outlook
Manufacturing has weakened in Germany because of protectionist trade policies and weakening global demand
In France, too, confidence in manufacturing has declined to the lowest level in almost four years
Economic growth in China appears to be stabilising; with the recent industrial and retail numbers showing improvement
Even the first-quarter GDP print came in slightly above expectation.
Going forward, a trade deal between the US and China would be a big
help for the global economy, as that will diminish the fear among the exporters worldwide
If not, protectionist measures, which other economies may opt for to shield themselves against the trade war, are likely to prove a barrier
Undoubtedly, the reversal in stance by major central banks has been beneficial for emerging markets like India
Both China and India have been engaging in monetary easing lately, with inflation under control
At home, RBI has highlighted three key risks – rising oil prices, sticky core inflation and volatility in global currency markets
Crude oil prices seem to be in runaway mode and this has potential to cause a spike in inflation
A swelling inflation may act as an impediment in further lowering interest rates by RBI .
Undoubtedly, the flow of easy money across the
globe is expected to speed up growth in the global economy, growing forward
At home, the easy money from across the globe has helped the domestic stock market stretch valuations
Since March 2019, India has seen one of the highest foreign equity flows compared with other emerging markets
They have been banking on the fundamentals of the Indian economy and expectation of a stable government at the Centre after the election
At present, stronger economic growth potential and a stable currency have turned India into a bright spot.
Chairman Managing Director,SMC
Investments and Advisors Limited
