Countries that are beneficiaries of lower oil prices will see inflows from European monetary stimulus, says Don Hanna, Managing Director, Roubini Global Economics' Asia.
In an interview to CNBC-TV18, Hanna sees the incremental flow from the ECB’s quantitative easing to go to emerging markets like India, Indonesia.
While foreign fund flows into India are likely to be robust, Hanna does not expect a significant appreciation in the rupee
Below is the transcript of Don Hanna's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: How are you reading the impact of the quantitative easing (QE), are you going to see euro/dollar parity, are you going to see a lot of money come into equity markets like India and the US?
A: There is certainly going to be continued downward pressure on the euro against the other currencies given the monetary easing. That means more open-ended and larger than the market had expected and that is also going to mean money is flowing in general not just into the securities that are going to be directly purchased by European National Banks and by the ECB but also into other risk assets around the world.
The issue however is you have still got degree of monetary easing that is being provided by the ECB and where the market has taken inflationary expectations back to where you were in July of last year. So in some parts this is a move that was expected that puts you back to where you were, to expect much bigger flows is probably overstated.
Sonia: Where do you see the incremental flows, if they do come where do you see them find their way, will it be to emerge markets like India and China or do you think the flows will go back to developed markets?
A: To the extent that you have created an environment where some of the tail risks associated with Europe has diminished when you go into the markets where you decide to take on the risk which is going to take you to markets in emerging markets as opposed to the developed markets per se. I am not sure that China qualifies on that regard but India, Indonesia certainly do. Those countries that gained from the other positive shocks the world has, which is lower oil prices, are the ones within the emerging sphere that benefits the most from what ECB did yesterday.
Latha: Would you track the Indian rupee, do you see it appreciating a lot?
A: Appreciating a lot, no. In the sense as the economy in India begins to pick up, investment will pick up. Also there is some improvement in the savings aside all things and current account overall is not going to increase that much.
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