India says QE may increase commodity prices, US says no impact

India today told the US that supply of excess liquidity by the country could increase commodity prices. The US, however, downplayed the fears saying an appreciating rupee would neutralize the impact.

“We did discuss the quantitative easing (QE). I raised the concern that it may impact commodity prices and commodity prices may rise… The US side pointed out that there has been no impact yet on commodity prices and commodity prices may not rise,” Finance Minister P Chidambaram told a press conference after the third Cabinet level meeting of the Indo-US economic and financial partnership.

The US pointed out that prices may rise in dollars terms, but not in rupee terms if the Indian currency continued to appreciate. Rupee had depreciated 9.36% to 55.64 against the US dollar at the end of the quarter ending June from 50.88 at the end of March quarter. It appreciated by 4.99% to 52.86 against the US dollar at the end of quarter ending September. 

The Indian finance minister, however, agreed there was a positive side to the issue as more liquidity into the market could route some of the investments into India too.

“I think it’s too early to come to a final conclusion on the impact of quantitative easing. It’s not only the US, Europe, Japan have also pumped in lot liquidity… If the US economy grows it help us in our exports, it helps us in attracting more capital inflows,” Chidambaram added.

Issues such as banking regulation, foreign direct investment in insurance, pension and multi-brand retail, taxation of companies, ways to lower trade barriers and global economic and financial developments also came up during the meeting between Chidambaram and US Treasury Secretary Timothy Geithner.

Geithner said India’s recent reform measures are very significant and offer a very promising path to improving growth outcomes for the Indian economy. He said it would improve the investment climate in the country and lead to more widespread gains in income.

Chidambaram said both the countries were committed to pursue close cooperation and would discuss wide range of macro-economic financial sector and infrastructure sector issues, including infrastructure financing, issues concerning money laundering and financing of terror.
 
“India is deeply locked into the global economy. Whatever happens in other parts of the world will affect us for better or for worse, and therefore, we must be in the better understanding of what’s happening in the other parts of the world, especially in the US and in the Eurozone,” said Chidambaram.

The meeting was also attended by US Federal Reserve Chairman Ben Bernanke and Reserve Bank of India Governor D Subbarao.