1. ECB provokes USD drop
ECB's Governing Council approved a new stimulus package in an attempt to fight deflation and warm up investor sentiment. ECB deposit rate glides into negative territory to -0.4%. The single currency needs to work instead of resting on the bank accounts. Moreover, every month since April ECB will transfer $87 billion to buy bonds of EU countries. ECB insists on the quantitative easing.
Mario Draghi maps out shifting from rates instruments to other tools in the struggle with low inflation. After the event the euro has dropped from $1.0974 to $1.0846 and then bounced against the dollar more than 1.6%. The weak dollar sent oil prices up for the benefit of oil exporters. Does the world prefer the strong euro?On Thursday the single currency survived through the strongest intraday move in three months, while investors reconsidered ECB policy amid the forthcoming Fed meeting. The difference in policy of the important financial institutions troubles the world. Where a solution of the problem can be found? Who will offer a plan to smooth the trouble?
2. Fed scrutinizes the economic interconnection
Next Wednesday FOMC will be discussing a possibility of the fresh interest rate rising in American banks in 2016. According to forecasts of Bloomberg analysts, the next interest rate hike will appear only in June. The U.S. economy must be above suspicion, and it is. The GDP increased at annual rate of 1% in the last quarter of 2015, unemployment turns out to be the lowest in eight years. What is under suspicion? The interconnection of national economies in the global world is so close and complicated, that Fed decisions seriously affects financial world.
Several months ago in the autumn of 2015, before the first interest rate hike in the U.S. in decade, Christine Lagarde has strongly recommended the first American financial lady Janet Yellen to think twice about the effect of the rate rising on the global finance. The Chair of the Fed always watches the labor market and inflation in the USA first of all, but at the same time she is sensitive to the global economic news. Commodities are priced in USD all over the world.
3. The idea of the world academic financial expertise
The idea of the necessity of an expert’s evaluation of the influence of a step in the monetary policy conquers the world.
For three days New Delhi was hosting an International Monetary Fund event. The India – IMF conference attracted a lot of attention thanks to PM Modi and IMF chief Christine Lagarde. Madame Lagarde in her speech emphasized the perspective for the country to become a modern financial center in the region. In two years by 2018 Indian banks will get access to the universal banking services. The participating in global financial services allows widening contacts with banks and financial institution all over the world, optimizing transactions and money transfers for business and citizens. At the same time the deep involvement of Bank of India in the global services presupposes more pressure on the national currency. The Reserve Bank of India governor Raghuram Rajan anticipated the danger and offered a plan how to assess the impact of Central Banks different monetary strategies on the global finance and markets. Raghuram Rajan considered a simple system of traffic lights – red, orange and green – as a format to present results of independent measure and analyze of a bank actions by a group of academics. A policy, which complicates and threatens the global situation, would get the red light.
The idea is very attractive, but hard to enact. The financial world moves fast, while academy avoids ado. The academics speculate. Meanwhile, a delay of financial decision can trouble the global market.