Monetary Policies adopted by the developed economies to bring back the GDP growth to the rate prior to crises of 2008. This may lead to asset inflation cause to asset bubble, if policy bank rate continue to remain at near zero for prolonged period

1. World Economies their Monetary Policies
impact on India
Ajinkya Jagoje
Partner
abm & associates LLP
Chartered Accountants
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2. Introduction
Gross Domestic Product growth forecasts for 2015. Source: IMF
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Global Economic Outlook : 2015
Gross Domestic Product growth forecasts for 2015. Source: IMF
 Crises in Europe – Greece
 China Melt Down
 US – Fed rate Hike
 UK – Full employment – rate
hike
 Australia rise in Debt
 Japan still in quantitative
easing
 Iran Removal of Sanctions-
Increase in Oil Supply- Price
fall
 Gold prices falling
 US $ getting Stronger

3. Economic Policies
Fiscal Policy
(adjustment through Government Spending and taxing action)
 Deficit Budgeting – financed by External Debt or printing
of Currency
Monetary policy
(adjustment through Interest rate and the total supply of money in
circulation )
 Taylor Rule –policy Interest rate = Current Inflation + Constant
(i.e. 2%)
3
5%
2%
7%
Inflation
Premium
Real
Interest
Rate
Nominal
Interest
rate
Macroeconomic policies are considered as
effective tools for stabilizing business cycles

4. World after 2008 crises
 The global economy grew at an average of 5% between 2003 and
2007
 But it grew at only 3.5% in the preceding 10-year period
 Current Interest rate & Inflation:
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Central Bank Rate Since Inflation (CPI) Month
USA (Fed) 0.25% 16-12-2008 0.12 % June 2015
UK (BoE) 0.50% 05-03-2009 -0.08 % June 2015
Europe (ECB) 0.05% 04-09-2014 0.22 % June 2015
Japan (BoJ) 0.10% 05-10-2010 0.48 % June 2015
China (PBC) 4.85% 27-06-2015 1.50 % June 2015
India (RBI) 7.25% 02-06-2015 5.40% June 2015

5. Global Interest Rate Bubble ?
 Whether US Federal Reserve, the Bank of
England and the European Central Bank via
their policies of holding interest rates at 0%
for extended periods under estimating
inflation ?
 Are they causing Asset Inflation?
 Big stocks in the S&P 500 have been up 136% since the Fed
started its stimulus program
 Dollar Index at its pick
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6. US FED likely to raise interest rate ?
 before September 2015?
 Not so compelling situation
 While auto sales have been robust, furniture, appliances and home-
improvement product revenues have not been
 Global investors are still clinging to U.S. Treasury Bonds
 Crude Oil is cheap and may become cheaper: That’s an indicator of
meager economic demand.
 The “real Gross National Product (adjusted for inflation), is actually
worse than it was since the third quarter of 2012,”
 The biggest fear is a perception problem at the Fed
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7. Whether this shall impact India ?
 Prudential forex management
 Forex reserve sufficient to fund imports for 10 months (at $360 billion )
 Inflation has stayed in a tight range
 fall in oil prices
 reduction in gold imports
 Current government has identified the black
economy as a hindrance
 The Black Money (Undisclosed Foreign Assets and Income) and Imposition of Tax Act,
2015
 Benami transactions will also come under government scanner and confiscation of
benami properties
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8. as per RBI governor Raghuram Rajan...
“India is much better placed to brace for a storm
today than it was in the past. However, waters can
turn rough and the ship may sway a bit further; but
ultimately, it will reach home safe.”
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