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Central banks start new round of quantitative easing

By Philip Smith

US, EU and Japan are among those issuing bonds but UK remains cautious

Central banks in the world’s major economies are expected to start a new, widespread, round of quantitative easing as part of a strategy of intervention in financial markets.

The US Federal Reserve, Bank of Japan and the European Central Bank are expected to buy almost £500bn (€587bn, £657bn) of debt, in the form of bonds, this year and nearing £1tn by the end of 2021, according to market commentator Nomura, say reports.

Quantitative easing (QE) is a way to boost the economy by aiding bank lending, lowering long-term interest rates and pushing investors out of safer bonds into riskier assets as the yield on those safe havens is reduced. QE has been used regularly since the 2008 global financial crash.

However, the Bank of England will not yet be among the leading central banks adopting the policy. It has temporarily ceased intervention – including the use of QE – due to high levels of uncertainty within the domestic economy.

The move to QE follows a year of global interest rate cuts by central banks in a bid to rejuvenate faltering economies as issues such as trade wars and Brexit heightened uncertainty. As low interest rates over the long term tends to stifle investment, QE is increasingly used as the alternative stimulus strategy.

FURTHER READING: Quantitative easing definition

FURTHER READING: Investors await first signs of Christine Lagarde’s ECB policy stance

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