World economies their Monetary Policies

World economies their Monetary Policies

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  World Economies theirMonetary Policies impact on India Ajinkya Jagoje Partner abm & associates LLP Chartered Accountants 1
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  Introduction Gross Domestic Productgrowth forecasts for 2015. Source: IMF 2 Global Economic Outlook : 2015 Gross Domestic Product growth forecasts for 2015. Source: IMF  Crises in Europe – Greece  China Melt Down  US – Fed rate Hike  UK – Full employment – rate hike  Australia rise in Debt  Japan still in quantitative easing  Iran Removal of Sanctions- Increase in Oil Supply- Price fall  Gold prices falling  US $ getting Stronger
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  Economic Policies Fiscal Policy (adjustmentthrough Government Spending and taxing action)  Deficit Budgeting – financed by External Debt or printing of Currency Monetary policy (adjustment through Interest rate and the total supply of money in circulation )  Taylor Rule –policy Interest rate = Current Inflation + Constant (i.e. 2%) 3 5% 2% 7% Inflation Premium Real Interest Rate Nominal Interest rate Macroeconomic policies are considered as effective tools for stabilizing business cycles
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  World after 2008crises  The global economy grew at an average of 5% between 2003 and 2007  But it grew at only 3.5% in the preceding 10-year period  Current Interest rate & Inflation: 4 Central Bank Rate Since Inflation (CPI) Month USA (Fed) 0.25% 16-12-2008 0.12 % June 2015 UK (BoE) 0.50% 05-03-2009 -0.08 % June 2015 Europe (ECB) 0.05% 04-09-2014 0.22 % June 2015 Japan (BoJ) 0.10% 05-10-2010 0.48 % June 2015 China (PBC) 4.85% 27-06-2015 1.50 % June 2015 India (RBI) 7.25% 02-06-2015 5.40% June 2015
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  Global Interest RateBubble ?  Whether US Federal Reserve, the Bank of England and the European Central Bank via their policies of holding interest rates at 0% for extended periods under estimating inflation ?  Are they causing Asset Inflation?  Big stocks in the S&P 500 have been up 136% since the Fed started its stimulus program  Dollar Index at its pick 5
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  US FED likelyto raise interest rate ?  before September 2015?  Not so compelling situation  While auto sales have been robust, furniture, appliances and home- improvement product revenues have not been  Global investors are still clinging to U.S. Treasury Bonds  Crude Oil is cheap and may become cheaper: That’s an indicator of meager economic demand.  The “real Gross National Product (adjusted for inflation), is actually worse than it was since the third quarter of 2012,”  The biggest fear is a perception problem at the Fed 6
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  Whether this shallimpact India ?  Prudential forex management  Forex reserve sufficient to fund imports for 10 months (at $360 billion )  Inflation has stayed in a tight range  fall in oil prices  reduction in gold imports  Current government has identified the black economy as a hindrance  The Black Money (Undisclosed Foreign Assets and Income) and Imposition of Tax Act, 2015  Benami transactions will also come under government scanner and confiscation of benami properties 7
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  as per RBIgovernor Raghuram Rajan... “India is much better placed to brace for a storm today than it was in the past. However, waters can turn rough and the ship may sway a bit further; but ultimately, it will reach home safe.” 8
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