BackQuick Edit | A tale of two central banks
Quick Edit | A tale of two central banks
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Coordinating monetary policy across the globe has always been complex. The financial crisis may be easing, but this challenge isn’t.
The US Federal Reserve on Wednesday announced that “economic activity is levelling out", or recovering. Yet, save for slowing the purchase of some securities, the US Fed is bent on continuing its highly expansionary monetary regime—its policy rate is still close to zero and it continues quantitative easing.
Some of this easy money is finding its way into emerging markets, including India. Portfolio flows in April-June were at $8.27 billion (Rs39,780 crore today)—more than foreign direct investment— forcing the Reserve Bank of India (RBI) to act. RBI said this week that it had bought a net $1.04 billion in June, its biggest intervention since April 2008. That means it’s been buying dollars, or selling rupees, to check the rupee appreciation that comes with greater capital inflow.
The Fed’s spigots may have saved the US. But if dollar liquidity continues unabated, it could keep pushing up the rupee and local asset prices.
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