Both
the ECB and Bank of England hiked rates on Thursday by
25 bps each, while the finance ministry has asked Indian
PSU banks to hold their lending rates down. What did global
economists make of the ECB and Bank of England and what
do they expect these central banks to do next? CNBC-TV18
shares with domain-b this report.
Stephen
Roach of Morgan Stanley agrees that they were a little
surprised by this move. But he does believe ECB and BoJ
have huge amounts of tightening to go ahead of them. "There's
much more risk to their interest rates than there is in
the rest of the world," he says.
According
to him, central banks are sending a signal that the easy
money that was available to bid up the price of risky
assets like emerging markets equity and bonds and some
of the more exotic credit instruments, than easy money,
is coming out.
"I
think if you see risk getting put back into these risky
assets, it would mean that it could be a little tougher
for investors in these non-traditional markets going forward,"
he said.
But
Jan Lambregts, senior economist, Asian region, Rabobank
was not surprised. The move, according to him was "pretty
much obliging market expectations." In fact, Lambregts
expects them to tighten two more times, in early October
and early December.
"I
think that is the point at which ECB is likely to take
a long break, a long pause. One reason is because we estimated
a neutral rate, which is the rate at which the economy
is needed to stimulate it nor drag as opposed by interest
rates when it is around 3.5 per cent. Second reason is
that we feel there will be some head wins for growth next
year in the euro zone," he explains.
As
far as BoE is concerned, he feels that it is moving further
into restrictive territory. Lambregts found it pretty
surprising they moved already yesterday, as it was not
even certain in the market that they would move next month.
"They surprised the market by moving yesterday and
that shows that they are concerned about inflation, which
is a worldwide issue," he said. Therefore, Lambregts
comes to the conclusion that there is a prospect that
they may do more even later on in the year, if inflation
doesn't subside.
Claudio
Piron from JP Morgan Chase too expects another two hikes
from the ECB, but to about 4 per cent in the middle of
next year. The driver for that, according to him, is that
even though structural capacity and structural growth
in Europe has declined, it is in a cyclical upswing.
"So
when we look at our GDP forecasts, we are actually looking
for Japan and Europe to actually outperform US growth
at the end of the year," he says.
Roach
finally sums it up in his own words, "If Central
banks around the world, do seem to be leaning a little
bit against inflationary winds, I think they are also
making an effort to withdraw the excess liquidity from
the world financial markets, which have given us a lot
of asset bubbles in the last six-seven years."
He
believes that's a healthier place for the global economy
to be and
ultimately, if they succeed in doing that without having
another of those post bubble collapses, the world economy
will be a better and more sustainable place.
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