"There are various
sorts of curiosity; one is from interest, which makes us desire to know that
which may be useful to us; and the other, from pride which comes from the wish
to know what others are ignorant of."
—Francois de La
Rochefoucauld (French, 1613-1680)
Word
for the day
Eponym (n)
A person, real or imaginary, from whom something, as a tribe, nation, or
place, takes or is said to take.
Malice
towards none
Tell me more about Brad Pitt
and Angelina.
Fed, BoJ, Uri,
Trump-Hillary, Cauvery, RBI et. al. can wait.
First random thought this morning
It feels miserable to hear some of the senior retired Army
Generals sitting in TV studios and seeking a jingoistic response from the
government to the cowardly terrorist attack on Indian Army.
These officers seem to be suggesting that for decades Indian Army
has never retaliated to the unprovoked killing of our soldiers from the
elements transgressing from across LoC.
This is totally unbelievable. Anyone who has spend even one hour
at a border post would know that the Men posted there do not necessarily seek
permission from New Delhi for responding to a fire from across the border.
Another false alarm
On the other hand the Bank of
Japan (BoJ) and the European Central Bank (ECB) are not leaving anything to the
imagination of analysts. They are consistently highlighting that the economic
conditions continue to be challenging, requiring continuous monetary support.
Both have pledged "whatever it takes" stance on almost every
available opportunity.
The fourth large pillar of global
markets - China, has never been vocal about its policy stance. However, it is
seen that in past few years, the response of the People's Bank of China (PBoC)
has mostly been reactionary - adjusting its policy stance to the stance of
other global central bankers. Though the de-valuation of CNY has been a matter
of concern for competing economies, of late not much noise has been raised over
it.
Given the high degree of economic
interdependence of US, EU, Japan and China over each other, anyone material
divergence in monetary policy stance could cause potentially cause serious
disruptions in global markets.
So leaving 25bps here and there,
expecting any major divergence in next couple of years at least would not be
reasonable, in my view.
The following three point that
stand out unambiguously (from the point where I stand) from the latest policy
decision of the Bank of Japan and the Federal Reserve of US may be noteworthy:
(a) The unconventional monetary policy tools being used by various
global central bankers have mostly lost their effectiveness. Japan and most
part of the Europe continue to struggle with poor economic growth and lack of
inflation, despite near Zero interest rates and trillions of dollars worth of
money printed and injected in the financial system since the last global
financial crisis, popularly symbolized by the collapse of US investment bank
Lehman Brothers.
(b) US economy appear stable, but not growing at desirable pace. In
the absence of support from other larger economies like China, Japan and EU -
the pace of US economic growth is expected to normalize much below the levels
seen in past few decades. The "new normal", as some prefer to call
it, is materially moderate than the historical averages. Whatever growth may
come, it would be mostly through productivity gains rather than higher demand.
The desired trajectory of Inflation therefore could be difficult to attain on
sustainable basis.
(c) The policy rates are likely to normalize much lower than the
historical averages, even in case of US.
More on this on Tuesday.
