Central Banks QE Alternative? | Aichi BMO International
Toronto, Canada (PRWEB) October 06, 2016 -- With the U.S ending asset purchases and raising the bar on interest rates, the BOJ (Bank of Japan) and ECB (European Central Bank) are still expected to depend on exhausting measures of quantitative easing in a fight to gain a stronger consumer-price, however what may have acted as a catalyst for growth once could potentially not work again.
We have seen the side effects of quantitative easing starting to kick in with financial-instability, which in turn has given great difficulty to obtain a sufficient asset to acquire.
The Bank of Japan have actively shifted their policy framework to maintain its sustainability, while the European Central Bank have been searching for ways to adjust the rules of quantitative easing to suit their needs. Both central banks are far from reaching their inflation goals, with worrying signs that policy makers have exhausted all their avenues.
“This is the first time in history we have ever been in this position; we have global markets reaching all time highs, interest rates at alarming levels and yet still the need for QE is just concerning.” Said Michael Bridges, Head of Corporate Trading at Aichi BMO International.
“You have to picture the markets are in a drunken state, with each round of QE we are only postponing the hangover buying us more time, however each new round of QE is giving us less and less time.”
At the ECB, talk has turned to tapering as a way to end QE rather than a sudden stop. While that says nothing about the timing of such a move, and the topic has been kept off the Governing Council’s formal agendas so far, the fact that an informal consensus is building on an exit strategy reflects a waning appetite among some policy makers for ever-more bond-buying.
In Japan, the central banks have over a third of outstanding government bonds, Governor Haruhiko Kuroda has now changed his direction from increasing debt purchases to the new approach of acquiring yields across a range of maturities.
"Everybody would like to find a way out of large-scale QE because it’s obvious that the economy can’t function like this forever,” Adam Glapinski, governor of the central bank in Poland, which is outside the euro area, told reporters on Wednesday. “But after a junkie gets hooked on various substances, he finds it hard to come clean and this can only happen gradually, in fits and starts."
The main challenge for the Bank of Japan and European Central Bank is to ensure that they wont be withdrawing stimulus to early or indefinitely to cause panic in the markets, we saw European stocks and other asset classes fall on the report from the European Central Bank on tapering before.
“‘Tapering doesn’t mean that monetary policy is going to be tightened,” said Klaus Baader, chief Asia-Pacific economist at Societe Generale SA in Hong Kong, and former co-head of European economic research in London. “It’s just being loosened at a slower pace.”
With QE being the supposed savior to a free fall of prices and wages, especially with the Euro-area inflation was negative from late 2014 until March 2015, when the European Central Bank introduced buying sovereign debt. The rate now stands at 0.4% and looks to gain in the coming months according to ECB projections.
Monetary officials are expecting governments to play a part in structural reforms and stimulus, as ECB President Mario Draghi has been increasingly vocal in the need for other policy makers to play their part.
Michael Stone, Aichi BMO International, http://www.ai-international.com, +1 647 243 8020, [email protected]
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