Кредитно-денежная политика в «количественном смягчении» — нужна ли?

In the master class "Be a Trader with iLearney"

Very often markets react more strongly to the statements of officials than to the publication of certain fundamental indicators. Investors pay especially close attention to the speeches of central bank governors. Since the global economic crisis of 1929, regulators have been actively influencing the processes taking place on financial markets.

Monetary restriction of monetary policy

Almost a hundred years have passed since then, and the influence of central banks on the dynamics of market pricing is becoming more and more evident. Depending on the policy they pursue, excess money appears on the market, or there is a shortage of it. Such trends are closely related to the processes taking place in the national economy.

In a simplified form, the main objects of macroeconomic regulation by Central Banks are either inflationor economic growth. If the regulator is not satisfied with the dynamics of growth of the consumer price index and other indicators characterizing inflation, it starts to implement measures restrictive (restraining) monetary policy. In this case, the main interest rates can be increased, the norms of deductions to the required reserves fund can be increased, and bonds can be issued. The main goal is to limit the resource base of banks in order to reduce the rate of lending to the economy. After all, the less credits are issued, the less domestic demand for goods, works and services, and, accordingly, the less prerequisites for price growth.

However, the situation is different: the crisis has not been painless, and many countries are facing a recession. Reduced consumption, slower or no economic growth, rising unemployment - this is by no means a complete list of its signs.

Classical monetary policy instruments

Under such conditions, the Central Bank is required to conduct stimulative policy, i.e. monetary expansion. Her main tool is lower interest rates. Loans are becoming cheaper, which creates an incentive for their wider use to finance production, investment and other programs, as well as for personal consumption.

But what do you do when interest rates are already low and there are no signs of economic recovery?

Main interest rates of central banks of developed countries

	Bid	Value
Australia	Cash rate	4.25%
UK	Repo rate	0,50%
Eurozone	Refinancing tender	1.00%
Canada	Overnight rate target	1.00%
New Zealand	Official cash rate	2.50%
Russia	refinancing rate	8.00%
USA	Federal Funds	0,00-0.25%
Switzerland	3 month LIBOR range	0.00-0.25%
Japan	Overnight call rate target	0.00%

The table shows that while Australia or Russia have significant potential to cut interest rates in the event of a slowdown in economic growth, the UK, the Eurozone and Canada have very limited room to do so. Not to mention the US, Japan or Switzerland. We should not pay extra to the Central Bank for the resources it provides!

Однако одно дело — желание банков кредитовать экономику, а второе – их возможности. Для того чтобы увеличить ресурсную базу второго уровня банковской системы в мировой практике используются следующие инструменты денежно-кредитной политики: reduction of the norms of deductions to the required reserves fund of the Central Bank и open market operations.

In the first case, the Central Bank returns to the banking system a part of the money that banks are obliged to keep on its accounts. Such measures have already been resorted to this year by the ECB, which for the first time reduced the norm of deductions in January from 2% to 1%, as a result of which about 100 billion euros returned to the banking system of the Eurozone, and by the People's Bank of China, which reduced the indicator from 21% to 20.5% in February and returned about $63 billion to the banks of the Celestial Empire.

Current trends in monetary policy

However, one thing is billions, and another is trillions of dollars. According to experts' estimates, the Central Banks of leading foreign countries have injected about $5-8 billion into the economy over the last 3.5 years. The latest most significant increase in liquidity is associated with the ECB and its LTRO program. It provides for an auction to place 3-year loans among European economic entities. The total volume of two LTRO rounds held in December and February exceeded 1 trillion euros. The main objectives were to stimulate economic growth and increase liquidity of the banking system. It was assumed that the received resources would be directed by banks to lending to the real sector of the economy and to the market of government bonds of European countries.

The ECB must have repeatedly evaluated the effectiveness before taking such a decision quantitative easing programsconducted by the Federal Reserve Board. Total volume QE1 (2008) and QE2 (2010), organized in the form of bond buybacks, amounted to $1.37 trillion, i.e. approximately equal in size to the LTRO. In addition, about two years ago the Fed organized a semi-annual Twist programsThe essence of which was to sell bonds for up to 6 years, the proceeds of which were used to purchase bonds for 6 to 30 years. This allowed to reduce the yield of long-term securities.

The US regulator's measures to saturate the market with additional liquidity have been quite effective: unemployment in the country is falling, consumption is increasing and growth rates are rising GDP. The LTRO results were not so rosy.

European banks are reluctant to invest the money received in lending to the real sector of the economy and in the purchase of government bonds, justifying it by the increased credit risks. Most of the resources provided settles in the ECB's correspondent accounts or trying to prove themselves on the interbank market. Banks simply do not know what to do with them. According to rumors available in the market, some large credit institutions are planning to repay the loans provided during LTRO ahead of schedule.

Thus, it is not always the case that increased liquidity leads to faster GDP growth. And this should be understood by the Central Banks of Japan and Great Britain, which are planning to loosen monetary policy by buying bonds. Thus, according to the minutes of the meeting of the Bank of Japan on February 13-14, the expansion of the asset purchase program from 10 to 65 trillion yen is envisaged.

Be that as it may, the increase in liquidity in the global banking system has a significant impact on the commodity market. In your opinion, how does it manifest itself? What will happen, for example, with quotations of gold or other precious metals, if the Fed decides to launch a program of QE3?