June 25, 2012
The Fed will extend its Maturity Extension Programme (operation twist) for another 6 months until year end. It intends to switch USD 267 bn of treasuries with maturities up to 3 years into maturities of more than 6 years (the volume of the 1st programme was USD 400 bn). The BoE has activated its “Extended Collateral Term Repo Facility”, auctioning at least GBP 5 bn per month with a maturity of six months. A “funding for lending” scheme has also been announced (size could amount to GBP 80 bn or 5% of GDP), which would allow banks to use lower-quality collateral such as loans to households or corporate in exchange for BoE funding.
In both cases policymakers are concerned about the recent weakness in their economies. The measures aim to reinvigorate anaemic credit growth, but their impact should be limited given risk aversion, the lack of credit demand and the declining economies of scale of unconventional policy measures. More is to come: The BoE strongly indicated at least another GBP 50 bn of QE and will most likely cut its key rate to 0.25%. The Fed kept its cards somewhat closer to its chest, but signalled its readiness to take further action as appropriate to promote a stronger recovery. The weaker preliminary June ISM and the slump in the Philly Fed index suggest that the Fed could be taken up on its promise pretty soon. We do not expect the ECB to remain on the sidelines either and expect a rate cut at the July meeting and most likely a further expansion of its balance sheet.
© Copyright 2013. Deutsche Bank AG, DB Research, D-60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”.
The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.
In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht. In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange regulated by the Financial Services Authority for the conduct of investment business in the UK. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product.