[Asia Economy Reporter Song Seung-seop] An analysis has emerged that major central banks will withdraw the quantitative easing policies implemented during the COVID-19 period and embark on large-scale tightening policies.
According to Bloomberg Economics (BE), the economic research institute under Bloomberg, on the 2nd, the central banks of the Group of Seven (G7) are estimated to reduce their holdings by $410 billion (518 trillion KRW) for the remainder of this year. They increased their holdings by $2.8 trillion (3,536 trillion KRW) last year. The total funds injected into the market due to the COVID-19 pandemic amount to $8 trillion (1,104 quadrillion KRW).
It was analyzed that, especially in the United States, situations such as rising bond yields and falling stock prices are occurring even before the Federal Reserve (Fed) raises interest rates. The Fed plans to reduce its holdings by up to $95 billion (120 trillion KRW) per month.
Although the Fed's tightening stance has been sufficiently transmitted to the financial markets and its effects are reflected first, the problem lies with the positions of other major central banks. When the Fed reduced its holdings from 2017 to 2019, such phenomena occurred only in the United States. Currently, other central banks also appear to be joining the tightening trend.
The European Central Bank (ECB) has announced it will end its quantitative easing policy in the third quarter. The Bank of England (BoE) stopped reinvesting in government bonds starting February. Among the G7, Japan is the only country continuing government bond purchases. The simultaneous tightening by major countries is an unprecedented phenomenon in the history of global monetary policy.
Bloomberg News pointed out that these tightening policies, along with interest rate hikes in each country, the Russia-Ukraine war, and China's COVID-19 lockdowns, will bring difficulties to the global economy. The global housing market and cryptocurrency market, which enjoyed a boom based on abundant liquidity, are also expected to face a "time of reckoning."
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