Foreign institutional investors (FIIs) are of the view that the new USD 700-billion financial bailout package passed by the US Senate is not a cure for all solvency-related issues.

Jim Walker, Managing Director, Asianomics, says: “There is a possibility of negative US GDP numbers starting this month,” adding that there might be much weaker economic growth in 2009. “Also, the interest rates will fall sharply in Europe and the US. The balance sheets in the whole financial system in the West need to shrink,” he said.

Kheim Do, Head of Asian Equities, Baring Asset Management, says he sees mild redemption activity. “The bailout package has obviously a lot to do with the housing sector in the US. I expect the European Central Bank will cut rates aggressively over the next six months. Hopefully other central banks around the world will follow suit,” said Do, adding that the US Fed will also continue to cut rates apart from Bank of England, the Reserve Bank of Australia, People’s Bank of China and perhaps also the Central Bank of India.

The US Senate had passed a revised USD 700-billion bailout bill on October 1 to breathe life back into the paralysed credit markets with a 74-25 margin for it. Earlier, the Senate had turned down a blanket USD 700-billion package designed by US Treasury Secretary Henry Paulson to bail out ailing financial companies in the US, prompting Republicans to formulate the revised package.