The big exit: central banks line up to cut emergency stimulus measures

A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada, on May 23, 2017. REUTERS / Chris Wattie

The Bank of Canada kicked off the scroll last week, becoming the first major central bank to scale back money printing stimulus programs during the pandemic. So who’s next?

The central bank’s big guns – the US Federal Reserve, European Central Bank and Bank of Japan – won’t officially cut stimulus for some time, a message reinforced by the BOJ on Tuesday and which the Fed is expected to reiterate Wednesday.

Still, the Bank of Canada’s $ 1 billion ($ 806 million) reduction in the Bank of Canada’s weekly bond buying program could remind investors that the next phase in 2021 will be the reduction phase, said to clients John Briggs, Global Head of Strategy at NatWest Markets.

With economic data confirming a more favorable outlook, Bank of America estimates that central bank asset purchases in the United States, Japan, the Eurozone and Britain will increase to around $ 3.4 trillion this year. , against nearly $ 9 trillion in 2020.

For 2022, the American bank is forecasting purchases of only $ 400 billion.

Here’s a look at who is falling, who may raise interest rates, and who could be the last to call the time on monetary stimulus during a pandemic.

Graphic: Central bank balance sheets


Norges Bank is at the forefront in terms of signaling a pullback, having signaled last month that a rate hike could occur in the second half of 2021. This has made the koruna the strongest G10 currency. performance this year.

The central bank does not intervene in the bond markets, so the debate on tapering is not applicable.


After announcing the cut, Canada signaled that its key interest rate could drop from 0.25% by the end of 2022.

Graphic: Canadian bond market shrinks in stride


The Fed plans to keep borrowing costs close to 0% and maintain monthly asset purchases worth $ 120 billion until it sees “further substantial progress” towards full employment and its flexible inflation target of 2%.

But with the economy expected to grow over 6% this year and inflation “a little higher” – according to Fed boss Jerome Powell – markets are anticipating a rate hike in 2023 and many analysts are ‘expect the reduction to begin this year.

The Fed faces a tricky balancing act, ensuring that the one-time cutback in massive US government borrowing doesn’t push Treasury yields too high.

Pictet Wealth’s senior economist Thomas Costerg expects the reduction to begin early next year and to unfold at a monthly pace of $ 10 billion. He said that means the process would take about a year – “enough to keep expectations for the first rate hike well at bay.”

Graphic: Central bank holdings of government bonds


The departure of Andy Haldane, the hawkish chief economist of the Bank of England, has caused the central bank’s £ 895 billion (£ 1.2 trillion) bond purchase program to be expected. dollars) will not be reduced anytime soon. The BoE expects inflation to hit 1.9% by the end of the year, but says the rise is likely to be limited in the medium term by the weak labor market.

Still, NatWest analysts believe the BoE could announce a £ 4bn cut from its so-called quantitative easing (QE) in May, slashing it to £ 14bn per month.

Money markets predict a 56% chance of a quarter point interest rate hike by the end of 2022.


Long-term anemic inflationary pressures mean eurozone rates are unlikely to rise for years. But the reduction could come sooner, particularly under the European Central Bank’s € 1.85 trillion ($ 2.2 trillion) Pandemic Emergency Purchase Program (PEPP).

Technically, this runs until March 2022, but some officials are already advocating reducing bond purchases as the economy strengthens.

Danske Bank analysts estimate that the ECB will end up using just € 1.65 trillion of the PEPP’s total stimulus package.

“As far as we know at this point, the PEPP is coming to an end in March of next year, so if you think about the slowdown from the current pace, it could happen as early as June,” said Andreas Billmeier, European economist. at Western Asset. .

Graphic: When will the ECB slow down the pace of its emergency bond purchases?


Australia’s economic rebound has exceeded expectations and is expected to expand “above trend,” the Reserve Bank of Australia said in April. But the bank, which has underlined its conciliatory credentials by adopting yield curve control, could be among the last to tighten its policy.

He wants to reduce unemployment and inflation to his 2% to 3% target before changing course, but doesn’t see either happen until 2024. Economists expect rates remain unchanged until then and estimate that the RBA could even extend asset purchases by an additional A $ 75. billion dollars to 100 billion Australian dollars (58 billion dollars to 77 billion dollars).


New Zealand’s strong recovery and searing real estate markets have sparked speculation that a rate hike could come sooner than expected.

While its key rate is expected to remain at 0.25% this year, some analysts predict a hike in the second half of 2022. The central bank, meanwhile, does not seem in a hurry to reduce its QE program by 100 billion neo dollars. Zealander ($ 72 billion).


Swedish inflation is approaching the Riksbank’s 2% target, but she said interest rates will stay at 0% for years. However, its 700 billion crown ($ 84 billion) asset purchase program will end this year as scheduled.


The BOJ pledged this week to maintain the stimulus using a yield target and purchases of government bonds and stocks.

It has been accused of a “stealthy decrease” because its bond purchases have slowed since the passage of the yield curve control (YCC) in 2016, although purchases have increased slightly in the past year.

In March, they were about 22.2 trillion yen ($ 204 billion) above levels a year ago. But that’s still a quarter of the 81.96 trillion yen year-over-year increase in August 2016, just before YCC’s arrival.

Graphic: The BOJ is gradually reducing its purchases of JGBs


The Swiss National Bank does not intervene in the domestic bond markets, but caps the Swiss franc through interventions that amounted to nearly 110 billion francs ($ 120 billion) in 2020. The proceeds are used for buy bonds and foreign stocks.

The franc is less overvalued than before, but the SNB shows no sign of abandoning its interventionist policy and its interest rate of minus 0.75% will not rise anytime soon.

($ 1 = 1.2411 Canadian dollars)

($ 1 = 0.7189 pounds)

($ 1 = 0.8284 euros)

($ 1 = Australian dollars 1.2903)

($ 1 = 1.3852 New Zealand dollars)

($ 1 = SEK 8.3775)

($ 1 = 108.8500 yen)

($ 1 = 0.9151 Swiss francs)

Our standards: Thomson Reuters Trust Principles.

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