'Monetary tightening still some way away'

Q&A: Cem Karacadag

Recent quarterly results of companies have shown a turnaround, equity markets have revived and the global credit crisis is becoming a passing memory. Cem Karacadag, Singapore-based director of the Emerging Markets Economics Group at Credit Suisse, stresses the sustainability of this revival. In an interview with Abhineet Kumar, Karacadag sees central banks staying away from monetary tightening in the near term. Excerpts.

Do you believe the global economic crisis is over?
It depends on what you mean by that question. Financial markets have certainly stabilised. The crisis in money and credit markets is now behind us. Central banks have played the key role in this revival.

The key question concerns global output growth. It’s becoming more clear that the worst has passed. Global industrial production is set to bounce back and job losses are moderating.

Is the revival sustainable?
It will be a gradual recovery, but we are confident it is sustainable. The US housing market, which is where the crisis started, has now bottomed out. Private consumption has started to pick up in the US too, though household saving rates have also increased. The massive policy response to the crisis has translated into improved consumer confidence at last.

But this growth is policy-induced. How long can it sustain?
The stimulus is working and the market is reacting favourably to it – that’s important. Post-Lehman, we didn’t know where the bottom of the crisis would be. Now, we have the answer to that question. As global liquidity returns and corporates look at investing again, it would appear that the various stimulus might have succeeded in kick-starting the private sector again.

Do you think central banks are soon going to tighten monetary policies, especially in India, given the high fiscal deficits?
Central banks are not going to tighten policies in the near term. In the US, it is a possibility in the second half of next year. And we do not expect any policy rate increases in India in this fiscal year. We do not believe rates will be tightened until central banks in India and elsewhere have more confidence in the economic recovery, which remains their top priority.