By DK AggarwalPolicy makers across Asia, Europe and North America have reversed course and some of the major central banks have turned dovish in their outlook.
The US Fed has signalled that it wont go for a rate hike at least for a while, while the European Central Bank has cut inflation and growth forecasts, and said it would not hike rates at least through the end of 2019.
Recently, the Bank of Japan also strengthened its soft money stance with a pledge to keep interest rates low at least till the spring of 2020.
Central banks across the globe have/had pumped in huge amounts of liquidity into the financial system to support their respective economies after the subprime crisis.
To provide some respite to their economies, the US and the European Central Bank pumped in money and so did the Japanese central bank and the Chinese central bank.
That made their respective economies addicted to easy liquidity.
That resulted in the green shoots seen earlier in the global economy.
But now those seem to be fading away mainly due to the trade war and other lingering concerns such as Brexit, Italys fiscal situation and Frances Yellow Vests.Subdued momentum across the euro area has signalled weakening economic outlook.
Manufacturing has weakened in Germany because of protectionist trade policies and weakening global demand.
In France, too, confidence in manufacturing has declined to the lowest level in almost four years.
Economic growth in China appears to be stabilising; with the recent industrial and retail numbers showing improvement.
Even the first-quarter GDP print came in slightly above expectation.Going forward, a trade deal between the US and China would be a big help for the global economy, as that will diminish the fear among the exporters worldwide.
If not, protectionist measures, which other economies may opt for to shield themselves against the trade war, are likely to prove a barrier for global growth.
Undoubtedly, the reversal in stance by major central banks has been beneficial for emerging markets like India.
Both China and India have been engaging in monetary easing lately, with inflation under control.
At home, RBI has highlighted three key risks rising oil prices, sticky core inflation and volatility in global currency markets.
Crude oil prices seem to be in runaway mode and this has potential to cause a spike in inflation.
A swelling inflation may act as an impediment in further lowering interest rates by RBI .Undoubtedly, the flow of easy money across the globe is expected to speed up growth in the global economy, growing forward.
At home, the easy money from across the globe has helped the domestic stock market stretch valuations.
Since March 2019, India has seen one of the highest foreign equity flows compared with other emerging markets.
They have been banking on the fundamentals of the Indian economy and expectation of a stable government at the Centre after the election.
At present, stronger economic growth potential and a stable currency have turned India into a bright spot.Chairman Managing Director,SMC Investments and Advisors Limited