Fitch Ratings says that the global quantitative easing (QE) asset purchases are likely to reach $6 trillion in 2020. Central banks' balance sheets are expanding extremely rapidly as they buy up large quantities of public and private assets as well as increase their lending to financial institutions in their efforts to counter the damaging economic impact of the coronavirus.
"Six trillion dollars is a staggering amount that is equal to more than half the cumulative global QE total seen over 2009 to 2018," Fitch economics team’s director Robert Sierra said.
The extent of the liquidity injection becomes apparent when it is considered that in mid-March, the Federal Reserve (Fed) balance sheet stood at $4.3 trillion, yet by late April (23 April) it had risen to $6.5 trillion, with the bulk of the expansion due to the increased purchases of US Treasuries.
In just six weeks during March to April, the Fed bought a total of $1.4 trillion US Treasuries, exceeding the purchases the Fed carried out during the whole period over QE1, QE2 and QE3 at the height of the global financial crisis.
The Fed's balance sheet is also expanding as a result of substantial currency swaps with other central banks amid a surge in demand for US liquidity, rapid expansion of existing credit facilities and announcement of new schemes, including the Main Street Lending Programme.
Equally impressive, but on a smaller scale, the European Central Bank (ECB) bought about $130.2 billion (EUR 120 billion) in just four weeks between mid-March and mid-April 2020, compared with about $21.7 billion (EUR 20 billion) per month prior to the spread of the virus. This reflects the implementation of the ECB's announcement in mid-March of an additional $944.4 billion (EUR 870 billion) of QE to cushion the crisis.
The upshot of these measures is that the Fed's balance sheet, on a broad basis including QE and other components, is expected to reach close to $10 trillion by the end of 2020, while the ECB's could easily surpass $6.5 trillion (EUR 6 trillion).
The Bank of England announced that it will be buying an additional $248.8 billion (GBP 200 billion) of Gilts, while also adding to its balance sheet total by expanding its Term Funding Scheme for SMEs.
For its part, the Bank of Japan is focusing on buying more exchange-traded funds by increasing its target for this year to a maximum of roughly $112 billion (JPY 12 trillion), while also providing cheap loans to firms affected by the virus outbreak.
Other central banks, including the Reserve Bank of Australia and the Bank of Canada, are also rapidly expanding their balance sheets.
Re-disseminated by The Asian Banker