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Bank of Japan halts quantitative easing, Reserve Bank of Australia begins to shrink, Bank of Canada and Bank of England are already shrinking, amid rising shock rates and fear in emerging markets

The Fed is lagging behind, now discussing when and how to cut QE. The ECB is lagging further behind as inflation begins to rage.

By Wolf Richter for WOLF STREET.

The Fed is lagging behind, not the leader, to end ridiculously easy monetary policies. At the ECB, internal resistance is building against its asset purchases, but for now it has been crushed, leaving the ECB even further than the Fed.

The Swiss National Bank continues at full capacity, but it does not buy Swiss assets; it prints francs and dumps those printed francs for assets denominated in euros, dollars and other currencies including US stocks, which is a different ball game and works as long as enough foreign investors are enough stupid to buy those Swiss francs.

But other central banks have already started the process of reducing asset purchases or raising rates. The Bank of Japan, which started shrinking months ago, has now completed its downsizing and its total assets have actually gone down. And some central banks have announced rate hikes, and others have already imposed rate hikes, including shocking rate hikes in Brazil, Russia and Turkey to curb soaring inflation.

So it is the big central banks that are cautiously stepping away from ridiculous easy money policies.

The Reserve Bank of Australia ad today he was going to cut his QE, reducing weekly government bond purchases from A $ 1 billion a week, to A $ 4 billion a week.

The Bank of Japan, one of the most voracious money printers over the years in terms of the size of its economy, behind the tiny Swiss National Bank, has already reduced its asset purchases for months. With the BoJ, you have to look at the numbers, not the gibberish in the press releases. The BoJ publishes its balance sheet figures every 10 days.

The publication of the balance sheet data on July 2 revealed that its total assets, after months of slowing purchases, actually fell by 7.7 trillion yen ($ 70 billion) at the end of June compared to the end of May, to a still gargantuan amount of 717 trillion yen ( $ 6.5 trillion):

The three-month moving average of its monthly QE purchases shows the current trend: in April, May and June, its total assets only grew on average by just 0.78 trillion yen per month, the smallest increase since start of Abenomics in 2012:

The Bank of Canada announced the first reduction in its purchases of Government of Canada bonds in October last year, from C $ 5 billion to C $ 4 billion, when it also ended the purchase of back-to-back securities to mortgage claims. In March 2021, he began to unwind his liquidity facilities, citing “moral hazard” as the reason. In April, it announced a further reduction in its purchases of Government of Canada bonds to C $ 3 billion, citing “signs of extrapolative expectations and speculative behavior” in the housing market.

The assets on its balance sheet have now grown from C $ 575 billion at the March high to C $ 481 billion as of June 30:

The Bank of England announced in May that it would cut its asset purchases, reducing bond purchases from £ 4.4bn per week to £ 3.4bn per week.

As the Bank of Canada denied in October that its tapering was true ‘tapering’, the BoE also denied that its tapering was shrinking, instead calling it an ‘operational decision’ that ‘should not be interpreted as a change in the stance of monetary policy ”. Politics.”

The reason this reduction is not diminishing, according to BoE Governor Andrew Bailey in the post-meeting press conference, is that the BoE has not changed its “fixed amounts” from its overall QE target of 895. billion pounds, she just buys less per week to achieve that goal.

The Central Bank of Turkey shocked the financial world in March with a shocking 2 percentage point rate hike, from 17% to 19%, to curb soaring inflation and support the lira, as economists expected a rate hike of half that magnitude . Shortly after the shock and awe rate hikes, Turkish President Recep Tayyip Erdo Camean proposed his own shock and awe-inspiring move: he sacked the governor of the Central Bank. Under the new governor, the key rate remained at 19%.

The Central Bank of Brazil has raised its key rate three times by a total of 2.25 percentage points, since mid-March, 75 basis points each time. The first of the rate hikes was shock and fear, with economists expecting far less of a hike. Since March, the Central Bank has raised its key rate from 2.0% to 4.25% and has put further rate hikes on the table to curb soaring inflation.

Bank of Russia ‘surprised’ economists with multiple rate hikes, and larger-than-expected rate hikes, starting March 19 with a 25 basis point hike when none were expected, followed on April 23 with a 50 basis point hike, and the June 11 with another increase of 50 basis points. occasional hike. Over the period, it had raised its key rate from 4.25% to 5.50%.

The next political meeting is scheduled for July 23. And Bank of Russia Governor Elvira Nabiullina has already prepared markets for the possibility of shock and dread rate hikes of up to 100 basis points. The reason: raging inflation, which the Bank of Russia, as it has said, considers “non-transitory”.

The Bank of Mexico has raised its key rate 25 basis points on June 24, to 4.25%, also surprising economists who had not anticipated a rate hike. No one ever seems to expect rate hikes.

Norges Bank, the central bank of Norway, who never entered QE, has repeatedly confirmed that it will start raising interest rates in the second half of this year, now likely in September, and has put two more rate hikes on the table for next year.

The Riksbank, the central bank of Sweden, ad at the end of April that he is pursuing his plan and ending his QE program by the end of 2021.

The Fed itself is now discussing when and how to cut back on asset purchases. The Fed still says it views raging inflation as “transient” or “temporary.” In its announced sequence, it will first end its asset purchases; then after the end of balance sheet growth, the Fed will raise its key rates; then later the Fed can reduce its balance sheet. This was the streak the last time around, when inflation was still below the Fed’s target, and that’s the plan for the future.

The gradual pace assumes that this raging inflation, the worst since 1983, even by the Fed’s own measurement, is truly “temporary” today. But if it turns out that the behavior of businesses and consumers with regard to inflation has changed – as I see it and claim it everywhere, including in the larger retail category, sales auto – which would make this rampant inflation much more persistent, so the Fed may belatedly come up with its own shock and fear treatment to bring it under control.

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