See more rally even if Greek crisis drags on: RBS

ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets

Even though resolution to the Greek debt problem remains illusive many risk assets remain a good 10-20% higher than their December lows. The seriate of course is the huge cash pumped in by the ECB, the Bank of England and maybe eventually with the FED. Sample the numbers, the ECB gave 489 billion Euros to banks as long-term debt in December and may give another trillion Euros later this month.

The Bank of England has promised to increase its cash infusion by 50 billion pounds and the FED says it will keep rates benign till 2014 and stands ready to do a QE3 if necessary. Stocks and commodities are raising to their 2007 highs. In a CNBC-TV18 special show Indianomics, Latha Venkatesh speaks to Imran Zaheer Ahmad, FX expert from RBS Global about the problem.

Here is an edited transcript of his comments. Also watch the accompanying video.

Q: One of the big negatives from Europe has been this illusive Greek deal, but the good news is that another huge tranche of ECB money is waiting to come in by the month end, what's your sense? Is there more legs for this rally even if the Greek problem drags on?

A: I think one of the key things to bear in mind is that I think the LTRO is particularly significant in that, it removes the tail risk of a European banking sector crisis. We entered this year with most investors being extremely gloomy about the global outlook and being extremely under-invested, now a large number of people in the investor community are looking to put money to work.

We have seen in some of the high frequency EPFR data, last week, we had USD 3.5 billion pour into emerging equity markets, USD 1.2 billion pour into emerging bond markets. I think that there is still much more inflows that are likely to come into emerging markets. I think even global equity markets like S&P will head towards 1400 level in some of these global indices as well. So, there probably is still a little bit more juice in this risk positive trade.

Q: Along with quantitative easing or note printing by the Central Banks come inflation fears, the Chinese CPI has already come in higher than expected. How long will it be before inflation pinches or punches this balloon at least in emerging markets?

A: I think inflation is a topic which isn't on the top of the investors' agenda or indeed on the top of a central bank's agendas. If you look across most emerging market central bank's the main prerogative or the main focus is stimulating growth. For example if you look in Brazil, they have been aggressively cutting the ceiling rate. They are worried about growth falling to around 2 or 3% this year and despite the fact that all of the underlying pressures on inflation in Brazil clearly on the upside, you have inflation above the target band.

You have core inflation rising. Inflation expectations are going up. Wage increases this year, expecting 14-15% public sector wage increases in Brazil. So, all of these things suggests that the underlying pressures for inflation continued to be upward. In particular, we have a view for food and energy prices that continue to remain resilient, head higher.

Now inflation pressures are definitely there. The question comes is at what point do Central Bank's start to react to these inflation pressures and the signals that we have been seeing coming into this year is inflation is definitely the problem to worry about later.

Q: How do you expect gold to move? Usually the yellow metal sags when people buy risk assets, but it rallies when there is excessive currency printing. So should we think that USD 1900 or USD 2000 per ten ounce is around the corner?

A: Overall, one of the biggest global macro themes we have had since the Lehman crisis has been the de-basement of fiat money. Not only have we seen the FED do quantitative easing. We have seen a massive expansion of the ECB balance sheet, but also various emerging markets Central Banks balance sheets have also been expanding. I think gold as a physical asset will continue to be supported. I think we will continue see gold prices head higher.
While there is still all this other uncertainty about future inflation that's likely to be a consequence of the loose monetary policy or loose central bank balance sheet explosion that we have seen.