Thursday, August 22, 2013


Freefall in exchange value of our currency has forced analysts to look for clues on its future. One of the popular clues is the minutes of Federal Open Markets Committee (FOMC) meetings. Latest meeting took place on 30th and 31st July. Minutes were released yesterday (21st Aug.)
Analysts were mainly interested in hints on future pace of Quantitative Easing (QE) and  when it will be withdrawn. Markets in emerging economies benefited from the Federal Reserve printing dollars to purchase securities because the dollars found their way to EEs which offered higher yields. Indian economy was a significant beneficiary. Any letup in QE will reverse the movement of dollars. Ben Bernanke has already conditioned the world markets to understand that QE cannot go on for ever.
In this context it was to be expected that observers would look for clues from minutes of FOMC meeting with eagle eyes. They were also preparing to read between the lines. But the minutes have been so deftly drafted that , according to BBC, instead of providing clarity, the minutes have only added more obfuscation. Please read the following para and find out if you are any wiser:
"In their discussion of monetary policy for the period
ahead, members judged that a highly accommodative
stance of monetary policy was warranted in order to
foster a stronger economic recovery and sustained improvement
in labor market conditions in a context of
price stability. In considering the likely path for the
Committee’s asset purchases, members discussed the
degree of improvement in the labor market outlook
since the purchase program began last fall. The unemployment
rate had declined considerably since then,
and recent gains in payroll employment had been solid.
However, other measures of labor utilization—
including the labor force participation rate and the
numbers of discouraged workers and those working
part time for economic reasons—suggested more modest
improvement, and other indicators of labor demand,
such as rates of hiring and quits, remained low.
While a range of views were expressed regarding the
cumulative improvement in the labor market since last
fall, almost all Committee members agreed that a
change in the purchase program was not yet appropriate.
However, in the view of the one member who
dissented from the policy statement, the improvement
in the labor market was an important reason for calling
for a more explicit statement from the Committee that
asset purchases would be reduced in the near future. A
few members emphasized the importance of being patient
and evaluating additional information on the
economy before deciding on any changes to the pace of
asset purchases. At the same time, a few others pointed
to the contingent plan that had been articulated on
behalf of the Committee the previous month, and suggested
that it might soon be time to slow somewhat the
pace of purchases as outlined in that plan. At the conclusion
of its discussion, the Committee decided to
continue adding policy accommodation by purchasing
additional MBS at a pace of $40 billion per month and
longer-term Treasury securities at a pace of $45 billion
per month and to maintain its existing reinvestment
Not knowing how to interpret this mumbo-jumbo, Rupee is continuing its downward journey. Commercial banks hedge their transactions. Central banks hedge their communication.


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