Fed hike not before Dec, helicopter money unlikely to be granted by BoJ: Arup Raha, CIMB

In a chat with ET Now, Arup Raha, Chief Economist, CIMB, says Japan is out of deflation but it has not managed to reach the 2% target. Edited excerpts


ET Now: What is it that you are sensing does it seem like Fed is going to stand pat and all eyes will be on the BoJ on whether or not they are going to talk further quantitative easing?

Arup Raha: Well as far as the Fed goes, most likely that is what the markets are also expecting and I think effectively there was a general belief in the markets that the Fed would not raise not just in September but for the long time. Then you got Janet Yellen speech at Jackson Hole which sort of put a hike back into play but I think the markets are pretty much expecting this to be in December.

The case for a hike is still not there and we can discuss it if you like but for now let me just focus on the BoJ. So it is a crazy week because you have both the Fed and the BoJ meeting and the BoJ has promised what is a comprehensive review and by and large if you look at the history they tend to disappoint the markets but the markets keep expecting this huge stimulus package to come from them this has even been talk later down the road that there will be helicopter money or a monetisation of the debt that is somewhat unlikely.

If you look at the comprehensive review you are going to see a few things there. The first is that they need to see why, what has held them back from getting that 2% inflation target of reaching it. Mind you much as people like to say it has not been there, the monetary easing has not been a complete failure, Japan is out of deflation but it has not managed to reach the 2% target.

The other thing that has happened with the recent rally and the recent hike in bond yields that you have seen along with where the Yen is the levels are pretty similar to where they were before Abenomics started, so you want to question that why are we back to where we were despite so much easing.

The third part is that they probably want to see what has been the benefits and cost of having negative interest rates so there is a more sort of rather than try and predict which way they will go next, I think they need to took a very hard look on what they have done so far and how successful that has been, what are the cost, what are the benefits, what are the risks. You will get further easing down the road.