Quantitative easing

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Querist : Anonymous

Querist : Anonymous (Querist)

23 September 2013 Q. easing means purchase of bonds by central govt.from the market to create liquidity in the market. now my que is when federal reserve of u.s. announced of purchasing bonds, rupee started depreciating. plz explain me.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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24 September 2013 rupee depreciation is based on several factors. You cannot link FED's decision alone to rupee depreciate.

Rather Dollar - Rupee is a strange relationship.

You can argue that FED's decision is based on the fact that America is not yet out of woods and growth will be slower. This would be signal to Indian exporters (specially IT services) that their US revenues shall fall. This can be interpreted as fall in exports and thus widening of Current Account deficit which will put pressure of Rupee.

You can also argue that if FED's decides to stop the bailout and liquidity easing, this could mean reduced dollar supply, which would automatically result in rupree depreciation..

So a lot of reasons can be given for Rupee depreciation. its like heads I win, Tails - u Lose..

Querist : Anonymous

Querist : Anonymous (Querist)

24 September 2013 thanks for updating my knowledge..but my que. is Federal reserve decided to purchase govt. bonds from the market which means increasing liquidity in the market and hence more investment then how this can be the reason of rupee depreciation as supply of dollar in the market will increase

Nikhil Kaushik

Nikhil Kaushik (Expert)
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25 September 2013 As I said that is one factor. You need to look at all the macro factors. Oil pricing. Indian domestic gdp. Another big factor is gold purchases. Outward remittances. Reverse investment flow. Increase in dollar supply would only cushion the impact. But the overall rupee pricing will depend on net demand supply gap

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