ECB: Liquidity rally

Published: January 24, 2015 1:14:12 AM

Given India’s favourable macros — falling inflation and CAD along with growth picking up and some reforms...

Given India’s favourable macros — falling inflation and CAD along with growth picking up and some reforms — the country is likely to be one of the bigger beneficiaries of the European Central Bank’s quantitative easing (QE). Thursday’s announcement by ECB president Mario Draghi means that the creation of global liquidity in 2015 is likely to be double that in 2014 (see graphic), almost all of which will come from the ECB — the fall in US bond purchases will be neutralised by the Bank of Japan’s rise in bond purchases. The doubling of global QE is not surprising given how policy rates in most of the developed world are nearly zero. In two of the three phases of US quantitative easing, the Sensex has risen smartly; ditto for the two phases the BoJ’s QE. While the higher price earnings multiples of Indian firms is a potential deal breaker, there are few other economies in the world that are growing as fast. According to Credit Suisse, while Indian earnings are likely to be downgraded, the downgrades will be among the lowest in the world, suggesting the India story still has some way to go.

ECB-quantitative

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