The ECB and BOE have shown their intent with their recent aggressive balance sheet expansions and the Fed is trying hard to keep the door open for more QE even as the data in the US continues to defy the general global slowdown.
I Asia however sticky inflation in India, a desire to nail property developers to the wall in China and a belief in a post earthquake in Japan have kept the big Asian central banks from providing additional easing. Even in Australia where the economy has been teetering on the brink of a recession for 6 months, the central bank has refrained from any decisive moves.
In three out of the four cases above however things may slowly be about to change.
In India, the central bank recently opened the door for considerable easing in 2012 as headline inflation comes in. The market has already heavily discounted such a move with Indian equities up about 25% since mid December 2011 and some big ticket single names such as Tata Motors up more than 50%.
Reserve Bank of India Deputy Governor Subir Gokarn said the monetary authority will cut interest rates once it's confident inflation will keep slowing."The stance now is that we have reached the peak and any further action will be toward easing," Gokarn, 52, said in an interview at his office while discussing the rupee, the government's budget deficit and bond repurchases. The central bank isn't concerned about the currency's record monthly advance in January "because in a sense it's a correction," following last year's 16 percent decline, he said. Emerging-markets have stepped up efforts to shield growth from the impact of Europe's debt crisis, with Brazil, Russia and the Philippines cutting rates in recent months.
The road is not entirely clear for easing by the RBI where two issues may still derail the central bank's intention to start an easing cycle.
Firstly, the government's budget deficit continues to increase and while borrowing to invest in infrastructure etc in India is certainly worthwhile, monetary policy may still have to lean against excessively and essentially structural deficit spending by the government. This is particularly the case as supply side constraints may mean that such deficit spending adds substantially to inflation.
Secondly, the INR may be subject to substantial weakening on a resurgence in global volatility. The Fed's USD swap lines as well as the the ECB's efforts to backstop the European banking system have so far calmed things down. Nevertheless, should another period of strong and sudden INR weakness ensue, it means the RBI would not be able to reduce the yield difference to the rest of the world in any meaningful way.
In China, the economy is now visibly slowing.