Olga Dubko, senior asset manager at YCAP and responsible for the group’s high yield solutions outlines YCAP Asset Management Europes’ stance on the necessity of QE.
We are all witnessing the phenomenon of capital markets often driven solely by the central bank policy. It started with the Federal Reserve, followed by the Bank of England and then massively fueled by the European Central Bank. What is the background of the asset purchase measures introduced by the institutions? Will the ECB extend or even enlarge quantitative easing?
Economies are struggling to recover from the crisis that initially started over seven years ago, uncovering various economical and to some extent political weaknesses not noticed before. The debt crisis forced people to save and loan demand as well as consumption dropped significantly. No counterbalance was offered by governments as they were also cutting costs, reducing investments and struggling with deficits, which have sent all major regions into a deep balance sheet recession – a term first introduced by Richard Koo, Chief Economist at the Nomura Research Institute.
While fiscal policy was inactive, only monetary policy was supposed to help. The idea was to increase the amount of money circulating while decreasing the interest rates further. Thanks to this supplementary liquidity, better loan demand as well as higher investment were anticipated. Liquidity amounts were huge indeed – and are still vast from the ECB – but did it impact anything apart from the equity, bond and currency prices? Let’s have a look at the most recent period.