Will Draghi do it?
Financial markets have got hooked to easy money. They will quite naturally celebrate in case the ECB goes ahead with quantitative easing
The European Central Bank (ECB) is expected to announce a plan to buy sovereign bonds with new money, popularly known as quantitative easing. The decision could come at a time when Europe has slipped into deflation for the first time in five years. The sudden decision of the Swiss central bank to abandon the policy that pegged the Swiss franc to the euro could also have been made in anticipation of further monetary easing in the euro area.
The financial markets have got hooked to easy money. They will quite naturally celebrate in case Mario Draghi does go ahead as expected. Printing money will push down the euro. It will also send a wave of fresh money into economies such as India that seem to be on the recovery path. The result will be an appreciating rupee as well as financial instability in the future. Reserve Bank of India governor Raghuram Rajan has already slammed the US Federal Reserve for not thinking about the effects of their extraordinary monetary policy on emerging markets.
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