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Central bank liquidity will not make a difference in this crisis: Michael Every

Central banks can pour in as much liquidity as they desire, but it will make no difference to the real economy, says Head of Financial Markets Research for Asia-Pacific at Rabobank International

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Last Updated: Feb 27, 2020, 03.43 PM IST
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Michael Every-Rabobank-1200
We are now in a crisis globally, in which central bank liquidity is utterly meaningless
Do you think we are near some kind of a bottom or do you think that cannot be taken as a clear call right now?
I think it is ridiculous to say we are near a bottom. The global economy has a huge number of problems and has had them for a long time. We are now in a crisis globally, in which central bank liquidity is utterly meaningless. It does not matter how much liquidity you throw into the financial system if demand collapses because everyone is panicking and staying in their homes. It does not matter what liquidity is thrown into the system if supply chains are smashed because of virus spilling out across the workshops of Asia. In that kind of a situation, central banks can prognosticate all they want and pour in as much liquidity they desire; but it will make no difference whatsoever to the real economy. If equity prices are supposed to have any connection to reality, that should mean the corporate earnings collapse too consequently. I do not see how anyone can say there is a bottom here.

How are you looking at the valuations of emerging markets and in particular, where does India stack right now in light of the slow growth period which we have gotten into, triggered by the virus fears?
We are talking about the entire global complex and emerging markets and in general, India sits within a particular universe. Obviously the growth was already slowing, growth was already disappointing, Everywhere you looked, we were already close to what you might call a stalled stage anyway. And this is of course, absolute hammer blow particularly to the uncertainty and just how bad it might get and how long it is likely to linger particularly now spreading out of the emerging markets into developed markets, which are key recipients of emerging market exports as well; so it is not just the domestic demand but exports too. On that basis, things can get truly ugly but obviously it is a very fast moving scenario and things can change in 24 hours. For the moment, it seems to be exceptionally unlikely that we are going to have a breakthrough of good news.

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