Showing posts with label Forex. Show all posts
Showing posts with label Forex. Show all posts

Wednesday, October 27, 2010

QE2 is coming...This November

Now a Days its mostly debated about QE2 across the boards and its implications on world economy.QE2 is nothing but Quantitative Easing a form of monetary stimulus which involves buying bonds from public.

Who is doing this ?  Managing the Federal Reserve's Balance Sheet

The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis.
 QE1 happened during crisis and they reacted in a number of ways,like purchases and reducing fed rate to near zero (0.25%) etc..

So what will happen if it buys back bonds from public?
The aim is to drive up the prices of long-term bonds, which in turn would push down long-term interest rates. It hopes that would spur more investment and spending and liven up the recovery.
The announcement is expected to be made at the conclusion of a two-day meeting of its policy-making committee next Wednesday.

So what are its implications?
 Growth will stay below trend, inflation below target and unemployment uncomfortably high—albeit with reduced risk of a double dip. For the Fed to come close to fulfilling its dual mandate of full employment and price stability, QE3 or QE4 may be needed in 2011.

 How about EM are like India?
EM is the main focus of the U.S. capital outflow. Leveraged carry-trades may pause for breath now that so much has been priced-in, but the real-money portfolio shift is likely to continue, causing near-term out performance, but sowing the seeds of future bubbles.
The talk of Fed going for QE2 brought huge inflows into indian Equity markets with FIIs investing a record $6.11 billion in October 
"FIIs see better rate of returns in emerging markets and India is set to attract a disproportionate share of inflows," Reliance Mutual Fund's head of equities Sunil Singhania said
 But with this FII flows its  obvious that rupee will appreciate and this inturn will hinder growth in exports which can be a cause of worry in near future.

           No FII inflow cap, but Re checks possible: FM
At this time, I am not thinking of putting any cap on FII (foreign institutional investment) inflows.
 The government ruled out curbs on foreign portfolio investment into the equity market, but said the central bank may intervene in the forex market to check rupee appreciation that was hurting exports

The current levels of capital inflows, which exceed financing requirements of the current account deficit, have put pressure on the rupee, resulting in its appreciation over the last few months.

The RBI has already expressed concerns over rising capital flows, which could further increase after further monetary tightening, which looks imperative in view of the sticky inflation.
Lets welcome November we will see a new game across countries related to forex,interest rates.inflation,unemplyement.