World needs concrete program on monetary easing: ING Fin

Tim Condon of ING Financial Markets, says that it would be a lot easier to go out of a debt crisis, if nominal GDP in the affected countries grow more quickly. Certainly, there is a widespread agreement that central bank can deliver nominal GDP growth over the business cycle and the failure to do that has been responsible for the dire stress that the debt crisis countries in the eurozone are in.

It's a bit hard to understand and it doesn't look like there is any inflation problem anywhere but central banks in the US and the ECB is reluctant to put in place a program of significant monetary accommodation which the world needs. Below is the edited transcript of his interview to CNBC-TV18. Q: All eyes are fixed on central banks. Our central bank (RBI) didn’t deliver a rate cut expectedly. What are you watching for from the US Federal Open Market Committee (FOMC) for starters?
A: In September we are expecting something to happen although even in our assessment that is not much better, but with a lot of pressure being deflected by the US authorities to the ECB and hopes that they will somehow deliver something that really put a line under the European debt crisis. The August meeting looks to go by without any dramatic action. Q: What could Draghi do when he says he will do everything to protect the euro? What can you expect? Some S&P purchases of Italian Spanish bonds? Anything beyond that if he did by then what seminal difference will it make to which of the markets?
A: It would be a lot easier to go out of a debt crisis, if nominal GDP in the affected countries grow more quickly. Certainly, there is a widespread agreement that central bank can deliver nominal GDP growth over the business cycle and the failure to do that has been responsible for the dire stress that the debt crisis countries in the eurozone are in.
Forget the purchase of Spanish, Italian or any specific countries bonds but a concerted program on monetary easing would do the trick. Inflation is the bugbear across the world. It's a bit hard to understand and it doesn't look like there is any inflation problem anywhere but central banks in the US and the ECB is reluctant to put in place a program of significant monetary accommodation which the world needs. Q: How do you expect the markets to move from hereon after these two days because they seemed to be very well supportive at least as of now going into these events with a lot of expectations?
A: The hope or threat of significant monetary easing is the only source of support for risky assets at this point. Once we are through the meetings and if the consensus forecast materializes there is nothing this month and then wait till September if that materializes we will go back to being data driven. We will watch the economic data and if the economic data disappoints as it has disappointed in Asia today, then there will be fresh pressure on risk assets. Q: How are you expecting the Fed to move a little in the future? In 2013 we are going to get into this fiscal cliff. Is there a QE3 in your book, not now but maybe it's imminent?
A: Some form of it, but not of the size that would make a big difference. Another time bound and limited pre-announced in size package of measures like seen earlier which have a temporary effect in providing some support to economic activity and investor confidence, but once the program is over then that temporary effect fades and we revert to data driven environment.
So we are not looking for anything from the Fed that would really change the way the markets have been functioning for the last three years.