[ad_1]
The ECB is the second giant to shrink. The Bank of Japan has already ended QE. The Bank of Canada has sold 15% of its assets. The Bank of England and the Reserve Bank of Australia are gradually declining. The Reserve Bank of New Zealand ditched the cold turkey from QE. The Riksbank will end QE this year. What’s taking the Fed so long?
By Wolf Richter for WOLF STREET.
The ECB has increased its balance sheet assets by a monstrous 154 billion euros ($ 181 billion) per month so far this year via alphabet soup of programs, blowing even money printers crazy about the Fed with their average rate of $ 123. billion per month. While there appears to be a consensus at the Fed that the “reduction” of its asset purchases will begin this year and be completed in the first half of next year, with assets then remaining at level, the ECB announced today that it will start reducing its asset purchases now. .
And as a result, it lags far behind the Bank of Japan, the Bank of Canada, the Bank of England, the Reserve Bank of New Zealand, and the Reserve Bank of Australia. But in front of the Fed.
In the footsteps of the Bank of England, which denied in May that its tapering was declining, and in the footsteps of the Bank of Canada, which denied last October that its tapering was declining – although it has since reduced l ‘quantitative easing to next to nothing and lost 15% of its assets – ECB President Christine Lagarde also denied at today’s press conference that tapering was tapering, and pointed out that the tapering was more of a “recalibration” of QE.
The markets eagerly swallow these conical rejections of hook, line and sinker. Anything but tapered.
In the press release, the ECB said the pace of net asset purchases under the Pandemic Emergency Purchase Program (PEPP) would be “moderately lower”. The PEPP is the big chunk of the programming alphabet soup, recently amounting to around 80 billion euros ($ 95 billion) per month.
The ECB did not say by how much it would reduce its purchases under the PEPP, but said it would “buy flexibly according to market conditions”.
The asset purchases under the PEPP will continue in reduced form “at least” until March 2022. After that, the balance would be at the “at least” level until the end of 2023, before the “roll -off ”of these bonds cannot begin. Roll-off means that the bonds mature and fall off the balance sheet when redeemed and would not be replaced by new purchases. This has the effect of shrinking the bond portfolio over time as the bonds mature.
The other programs would continue as before.
Longer-term targeted refinancing operations (TLTRO III) will continue. These are loans to banks in the euro zone, now with a balance of 2.2 trillion euros.
The Asset Purchase Program (APP), the now relatively small classic QE program that existed before the pandemic and which includes sovereign bonds, corporate bonds, covered bonds and asset-backed securities, is would continue at a monthly rate of 20 billion euros and “end shortly before”, the ECB begins to raise interest rates.
This is in line with the consensus among central banks, confirmed by the Fed, that QE must end before interest rates can be raised, on the grounds that QE drives down long-term rates, while the hike policy rates push up short-term rates. , which would wreak havoc on the yield curve.
As of this week, the total assets on the ECB’s balance sheet stood at 8.2 trillion euros ($ 9.7 trillion), about $ 1.4 trillion more than the Fed’s monstrous holdings. The four largest groups of assets on the ECB’s balance sheet are:
- € 4.6 trillion in bonds (mainly sovereign bonds, but also corporate bonds, covered bonds and asset-backed securities).
- € 2,200 billion in loans to banks under TLTRO III
- 515 billion euros in gold and gold claims
- 477 billion euros in foreign currency assets
Reducing its balance sheet is nothing new for the ECB. It reduced its assets by a third over a two-year period, dropping them from 3,100 billion euros at the end of 2012 to 2,000 billion euros at the end of 2014.
In early 2015, it launched a vast QE program which ended at the end of 2018. Between that date and March 2020, assets remained stable.
From March 2020, the ECB went mad. And now the ECB is trying to figure out how to get by without blowing up the eurozone:
Lagarde said the decision to reduce – oops, I mean recalibrate – asset purchases was unanimous.
Timidly following in the footsteps of:
The Bank of Japan reduces its asset purchase to near zero, without any hype, ending not only the pandemic QE frenzy, but also the third stage of the economic religion of the Abenomics – namely massive money printing. The current rate of asset purchases is tiny and the lowest since before Abenomics in 2012:
The Bank of Canada began reducing its purchases of Government of Canada bonds last October, ended its purchases of mortgage-backed securities and abandoned its pensions and Canada treasury bills, which had the effect of reduce its total assets by 15% since the March peak:
The Bank of England announced its decision to reduce its asset purchases in May and has since reduced its weekly bond purchases, net, from around £ 4bn per week to almost £ 2bn per week during the summer :
Reserve Bank of New Zealand ended its asset purchases in May without shrinking to end the world’s No.1 real estate bubble:
The Reserve Bank of Australia announced in July that it would start reducing its asset purchases from A $ 5 billion per week to A $ 4 billion per week. The total assets on its balance sheet fell last week for the first time this year:
The Riksbank of Sweden confirmed he would end QE entirely by the end of 2021.
And what takes the Fed so long? Nobody knows. Amid the most monstrously overstimulated economy and markets ever, the Fed is still printing $ 120 billion a month, though there seems to be a consensus not to fall much further behind than it is. is already and is starting to reduce its asset purchases this year.
Do you like reading WOLF STREET and want to support it? Use ad blockers – I totally understand why – but you want to support the site? You can donate. I really appreciate it. Click on the beer and iced tea mug to find out how:
Would you like to be notified by email when WOLF STREET publishes a new article? Register here.
Watch our sponsor, Classic Metal Roofing Systems, discuss the benefits of using the products they manufacture.
Product information is available from Classic Metal Roofing Systems, manufacturer of beautiful metal roofs.
[ad_2]
Source link