Citi Warns “Central Banks’ Grip On The World Economy Is Waning”

While central banks’ grip on the economy seems to be waning, notes Citi’s Matt King, additional liquidity still seems as potent as ever when it comes to propping up global markets. The question in our minds revolves around whether central banks remain willing to keep pumping when the economic benefits are so questionable. Equally, though, valuations are already so elevated that we doubt they can afford to stop. One way or another, this feels like a recipe for increased volatility.

Bigger ECB asset-buying expansion planned

The much-awaited expansion of the European Central Bank’s asset-buying, or quantitative easing (QE), program will be larger-scale than expected, according to Royal Bank of Scotland, which says the objective now is to head off mounting deflationary pressures in the euro zone.

RBS, in a research paper published this week, says the ECB will expand its balance sheet from €2.2 trillion ($3.2 trillion) now to €4.5 trillion, and not the €3.1 trillion previously envisaged. This suggests a further €2.3 trillion of bond purchases, which is more than twice the amount so far mentioned by ECB officials.