QE on steroids

Central banks around the world have announced a co-ordinated programme designed to improve liquidity and ease troubled financial markets.

The central banks involved include the US Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada, Japan and Switzerland.

The co-ordinated initiative is due to start on 5th December 2011.

It will work by making it cheaper for central banks to buy US dollars by giving them access to funds when required. They will also have easier access to other currencies, if required.

It is a move that has been described by one analyst today as “quantitative easing on steroids”.

Whilst indicating that central banks are prepared to take steps to ensure continued liquidity in the capital markets, which should help to prevent another global financial crisis, critics of the measure will point out that it does nothing to deal with the underlying issues.

Markets have reacted very positively to the announcement, with the FTSE 100 index of leading UK company shares up by over 3% as we type this.

We should start to see the impact of the initiative very quickly once it is introduced, in terms of improved liquidity, lower lending costs and better market sentiment.

Photo credit: Flickr/limowreck666