Central
banks around the world are going through a phase which need maneuvering every
time in order to sustain the drastic domestic headwinds and the harsh external
shocks. Across the globe, there are two such central banks which are closely
watched always and have given clues of what is about to come in couple of
weeks. These references of what is about to come acts as a cushion for the rest
of the world to get its financial act together and sustain the changes with
ease. However, for last couple of months there have been some changes which has
raised eyebrows of economists around the globe and made them think on their
toes to counter the unprecedented events from two major developed nations.
On one
hand, Federal Reserve is pondering over the much debated issue of "When to
move up from Zero-Lower Bound?" with the final taper act in couple of
months and on other hand the lack of take-up for the TLTROs (Targeted Long Term Refinancing Operations - under
which banks could disburse loans at an interest rate of 0.15% for four
years provided they increased lending to businesses or households) will force
the ECB into more drastic action, including buying government bonds under a
quantitative easing programme. The actions of major developed economies have
forced the developing economies to keep a hawk-eye on the easy money flowing in
their countries and their after effects. Reserve Bank of India led by Dr.
Raghuram Rajan has reiterated the effects of saturation of the present easy
money from the economy. It’s depreciating effect on the currency and the bubble
creation in Real Estate and Stock Market (with many believing that markets
are way over their sustained fundamentals).
In this
case foreign investors’ flight for safety would pressurize the currency and
when ECB's easy money flowing into the economy would soon become a reality,
focusing on the fundamentals for an emerging economy would be the survival
mantra. It is a mantra that can help us tackle the external headwinds with
enough ammunition. Easing Consumer Price Index at sub 7.7% levels, with our crude basket at sub $100/barrel levels and with monsoon deficit receding at present 10% from a scary 20 plus percentage a month back coupled with
pro-reforms action taken by the majority backed governments highlights are
strong fundamentals and preparedness to face the external economic pressure
with much confidence.
Though as
of now the Indian economy has sustained the taper effect quiet comfortably, I
am still curious about the after effects of, A) "Flight for Safety" on the domestic economy with interest rates
being raised from the Zero Bound level and B) Europe’s easy money pouring into the emerging economies.
