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March 2015 - DIVERGENCES

Business cycle divergences are growing within the developed and emerging economies. The marked decline in oil prices is likely to have differentiated effects. In net importing countries, it should strengthen demand. The impact would however be delayed in countries as in Europe where the domestic situation is still fragile. In net exporting countries, the oil price drop would have restrictive or even destabilising effects on the most vulnerable countries. Against this backdrop, monetary policies are likely to diverge, with the Fed gradually normalising its policy whereas the ECB and BoJ would pursue their asset purchase policies. In addition, emerging countries are expected to continue to relax their monetary policies. This environment would be conducive to a strong dollar against all currencies and to bond yield remaining generally low.

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