The limited measures of the central banks amidst the adversity of the epidemic

- The change in monetary policy in America has an impact on the whole world

Global financial markets are dealing with the dilemma between the possibility of a premature interest hike by the US Federal Reserve. The Fed’s latest forecasts are significant and will likely be considered a turning point for global monetary policy response to the epidemic. The change in monetary policy in America has an impact on the whole world. In 2016, for example, the Fed cut asset purchases, known as temper tantrums, leading to a cash crunch that drew large amounts of money from emerging markets.

Such a crisis is unlikely this time around, but changes in the Fed's forecast and possible policy changes have begun to be exercised by central banks, including the Reserve Bank (RBI). The Fed's economic forecast has changed steadily over the past few months. This suggests that some near-term uncertainty is undeniable. However, Fed Chairman Jerome Powell said the high inflation is temporary and will be contained in the near future.

The Covid crisis is very different from the general business cycle recession or financial crisis. The first goal of mutual banks of different countries was to stabilize the financial system and avoid misallocation. As the financial system stabilized due to heavy liquidity, central banks began to focus on growth and inflation. Emerging market central banks took precautionary measures in the early stages as the markets were volatile. The situation changed as the market was located. Central banks began to adopt new measures to replace the ones used during the global financial crisis.

Central banks in developed countries have come close to zero by reducing rates with widespread asset purchases. The Federal Reserve quickly expanded its balance sheet and is still buying ના 150 billion worth of bonds a month. After the epidemic, the size of its balance sheet has almost doubled to Rs 3 lakh crore. The RBI reduced policy rates and increased liquidity in the system. He also actively supported the government's borrowing scheme, targeting long-term repo operations and achieving liquidity in various sectors. It was expanded without raising interest rates. The RBI has said in its recent monthly bulletin that the RBI is largely involved in buying government bonds from the open market and has taken responsibility for issuing securities by the government in its balance sheet. But it remains to be seen what steps the RBI will take in the face of inflationary pressures.