Here is the big surprising decision from the outgoing Chairman of the US Fed-Ben Bernanke. The big push bond purchase programme or QE will continue and this means that the US Fed who emerged like a central bank of the world, will continue to inject $85 billion dollars monthly into the US financial system.
Bernanke’s decision to continue the monetary stimulus programme comes in the background of the incomplete recovery news of the US economy. The unemployment rate has not came down notably, the long term interest rate showed an uptrend and besides, the Treasury’s expenditure compression effect is hitting the economy.
The Fed’s decision to postpone the reduction of bond purchase programme will definitely produce big rally in the emerging market currencies and financial markets. So far, the South African Rand has made a strong gain of around 2.07 percent. Turkish Lira also made a strong comeback against the dollar.
In the real sense, the postponement of tapering is adding long term risks to the currencies of emerging markets that have current account deficits. These currencies will gain in the coming days, but once the Fed declares tapering they may shed the big gain made now in a sudden shock. So far the news is good, but is a risk which is growing due to unrealistic appreciation produced by the postponement news.
The rupee is also expected to follow the path of the emerging market currencies. It may outsmart its peers in the early trading hours of Thursday.