Post US debt rating downgrade, the Federal Reserve Committee decided to keep the federal fund rate at 0 to 0.25 per cent. It anticipates that economic conditions of low rates of resource utilisation and subdued outlook for inflation over the medium run are likely to warrant exceptionally low levels for the federal fund rate at least through mid 2013. The committee has also decided to maintain its existing policy of reinvesting payments from its securities holdings. This decision has sent a strong signal of robust money growth at the global level, which will be further complemented with Europe’s decision of buying Italian and Spanish bonds.
The US and EU crisis has made life miserable for the Swiss and Japanese governments as the currencies of both the countries have witnessed massive appreciations in a short course of time. Since January, Swiss Franc has appreciated 22.2 per cent against US dollar, while Japanese Yen has risen by 5.5 per cent; leading the central banks to protect their currency from further appreciation. The Japanese Yen’s rise to levels close to post Second World War highs prompted Japan to sell Yen last Thursday (first market intervention since Mar 2011). That day, the Bank of Japan added 10 trillion Yen of monetary stimulus. Similarly, the Swiss National Bank has already announced to significantly increase the supply of liquidity to the money market and expand banks’ deposits to 120 billion Francs from 80bn Francs. Additionally, it will conduct foreign-exchange swap transactions to generate liquidity.
The Federal Reserve Committee’s announcement of keeping low rates through mid 2013 broke all records for the Fed itself. The decision for keeping a single constant rate for 54 months clearly hints at a huge liquidity stimulus in the world. Muzammil Aslam at JS expects China and India to stop tightening their monetary stance further. Australian and New Zealand central banks are expected to ease their policy stance as well, while Swiss and Japanese Bank will continue to augment their local currency supply. Moreover, we are not ruling out the measures relating to capital control by Chinese, Japanese and Swiss Banks to restrict the unprecedented flows to their economy, he added.
Due to higher global money growth, we expect yield hunters to divert their capital flows to Pakistan, as its Euro bond offers +10 per cent yields. Additionally, Aslam said that we expect the upcoming $500 million worth Exchange and Eurobond of Pakistan to attract investor interest. Unlike 2011, he added, we expect higher capital inflows into Pakistan market through debt market and expect equity market to start to attract foreign flows at some point, as KSE offers a 9.2 per cent dividend yield – by far the highest in the region. On the basis of the aforementioned thesis and purely on account of capital inflows, we are not ruling out an exchange rate appreciation in FY12.
I think the article presents a rosy picture of a bankrupt economy. The country is run by thieves, crooks and self interested pundits, in a state of war, can't afford to pay for furnace oil to produce electricity or indeed has no vision about the seriousness about the depth of the problems the country is facing, from population explosion, de-industrialisation because of problems in energy supplies, rising poverty levels and degree of lawlessness touching the Plato of failed state. The is surviving only because of its strategic location. How she can show an appreciation of exchange rate in FY12, one can only lauggh?
lol
yep, it sure did appreciate. Who was the dummy predicting that. Some "staff reporter", commenting on currency, LOL. Its june 2012 and the currency has depreciated by about 10% from the article was penned.
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