Central Banks across the globe are going the right way

Business

oi-Sunil

By Sunil Fernandes

Published: Thursday, June 21, 2012, 9:15 [IST]

It's now becoming a habit with the markets to get pumped up by high expectations from the Central Banks across the globe and then have these expectations belied. For weeks now there were high expectations from the Federal Reserve that it would unleash the 3rd round of quantitative easing.

All the US Federal Reserve did was to keep rates unchanged, extend Operation Twist and merely hint at a quantitative easing.

This was the most likely outcome, except that so much expectations were built on a quantitative easing.

Earlier this month, analysts had built huge expectations from Mario Draghi, the European Central Bank President of a possible hint of a third round of long-term monetary easing (LTRO). This too did not come through and Mario Draghi hinted at nothing. Banks and individuals are just waiting for cheap money, as if to say that this would solve the problems the global economy is facing.

Earlier this week expectations were from India's central bank (RBI) that it would cut repo rates and the cash reserve ratio. Economists and analysts were shocked when the status quo on both were maintained, leaving stock markets gasping for breath and sending bond yields higher. The Reserve Bank of India of course had more than valid reason to leave rates unchanged, as inflation in the Indian economy continues to be sticky. Again a question of getting money cheaper for the Industry.

The last few rounds of easing by the various central banks across the globe have hardly helped the global economy, which continues to falter, whether it is India, the US or Europe. In fact, stock markets across the globe rallied before the Greece elections on hopes that Central Banks across the globe would take coordinated action.

Easy money in the long run could finds its way into different asset classes, causing an unwanted asset bubble. In the past individuals never understood the value of money, simply because it was cheap.

In the present context what the various central banks across the globe have done is both prudent and safe.

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