Little Sign of QE3 Liquidity Flooding Into Asia, World Bank Says

Mahmoud Mohieldin, World Bank Group managing director, comments on the Federal Reserve’s latest round of so-called quantitative easing, known as QE3. He also speaks on risks to global growth, fund flows and rising demand for Islamic finance.

Mohieldin made these comments to reporters at a conference in Kuala Lumpur today.

On whether QE3 might drive a flood of liquidity from the U.S. to Asia and push up asset prices in the region:

“We’re not seeing the signs of that yet. We’ve seen the kind of good coordinated efforts by the economic authorities in the U.S. to deal with such challenges coming primarily from concerns related to the U.S. economy, but definitely they will have the impact if the kind of measures being undertaken recently are going to be supported by the other measures and actions needed to support the American economy in the future.”

On whether QE3 poses any risk to Asia:

“We have seen this kind of action is being undertaken by the Fed in the context of supporting the U.S. economy. This is the right thing to be undertaken, but this is not going to be sufficient alone. Major work is being needed in the real economy side and on the fiscal front to make these measures undertaken useful and effective.”

On global growth in Islamic financial assets:

“The estimate is ranging from 10-15 percent growth for the forthcoming three years. The supply side is being very much driven by more competition, more branches, more banks.

“Despite the challenges during the global economic developments and the tough times, we’ve seen many countries in the Muslim world doing well because their economies are commodity-based and they have been gaining fortunes.

“The third factor is about the diversity of the products. Unlike 10-15 years ago, you can now see a good variety of activities from banking instruments to non-bank financial services. There has been a great deal of development as far as the harmonization of standards and regulations which have encouraged many market participants to be involved.”

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