Sunday 11 December 2016

Policy makers look to cut their way back to growth

Published 10/04/2015 | 02:30

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European Central Bank (ECB) headquarters in Frankfurt, Germany. Photo: Bloomberg

THE European Central Bank (ECB) announced this week that it had bought almost €61bn of government bonds and other assets in March, just beating its target in the first month of a programme designed to revive the moribund Eurozone economy.

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The ECB has committed to buying €60bn of assets a month until September of next year, or longer if needed, to encourage growth and get inflation back on track to hit its target of just below 2pc. The ECB has joined a small club of other central banks that have embarked on so-called quantitative easing, including the US Federal Reserve, the Bank of England and the Bank of Japan.

The Fed is expected to start raising interest rates later this year, ending its era of ultra-easy monetary policy as the economy recovers, though the timing of such a move remains uncertain. More broadly, however, monetary easing looks set to be around for some time.

Readers familiar with the actions of the ECB may not know that 25 other central banks around the world have eased policy this year, in an unprecedented wave of measures aimed at boosting growth and bolstering inflation in countries across the globe.

Singapore became the latest jurisdiction to do so, with its central bank yesterday announcing that it would loosen policy for the second time this year. Analysts are divided over the magnitude of any easing as authorities contend with slowing growth, a pick-up in core inflation and risks of fund outflows.

Politicians in China are also under pressure to do more to bolster growth as forecasts predict the economy probably cooled further to grow 7pc in the first three months of this year, which, while impressive by European standards, would be the weakest pace in six years.

The world's second largest economy has lowered interest rates and relaxed banks' reserve requirements in the last three months as activity has slowly deteriorated. The country is expected to loosen policy on both fronts again in the near future.

From Venezuela to India, and from Pakistan to Australia, interest rates are being cut or held steady.

The Bank of England said yesterday that interest rates have been held at a record low of 0.5pc for another month, which is now more than six years after the record low was introduced. Inflation in the UK is at zero, and is expected to dip into negative territory.

By contrast, the United States is bucking the trend, where a debate on when to hike interest rates is under way. But even in this case, the timing of the move, which would be the first in a decade, is still unclear.

The job market in the US had been a lone bright spot in the world's largest economy.

But it has ebbed and then slowed sharply last month, reinforcing the notion the Fed would delay an initial rate hike until later this year or even into next year.

The era of monetary easing is far from over. (Additional reporting Reuters)

Irish Independent

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