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Central Bank Balance Sheets Surge on Coronavirus Crisis

April 27, 2020, 09:15 AM
Filed Under: Economy

Global Quantitative Easing (QE) asset purchases are likely to reach USD6 trillion in 2020, Fitch Ratings says. Central banks' balance sheets are expanding extremely rapidly as they buy up large quantities of public and private assets and 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," said Robert Sierra, Director, in Fitch's Economics Team.

The extent of the liquidity injection becomes apparent when it is considered that in mid-March the Fed's balance sheet stood at USD4.3 trillion yet by late-April (23 April) it had risen to USD6.5 trillion, with the bulk of this expansion due to increased purchases of US Treasuries. In just six weeks during March-April, the Fed bought a total of USD1.4 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, the rapid expansion of existing credit facilities and the announcement of new schemes including the Main Street Lending Programme.

Equally impressive, but on a smaller scale, the ECB bought about EUR120 billion in just four weeks between mid-March and mid-April 2020, compared with about EUR20 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 EUR870 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 USD10 trillion by end-2020, while the ECB's could easily surpass EUR6 trillion.

The Bank of England announced that it will be buying an additional GBP200 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 ETFs (exchange-traded funds) by increasing its target for this year to a maximum of YEN12 trillion (roughly USD118 billion), 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.

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