Monthly Briefing on the World Economic Situation and Prospects, No. 42

• Developed country central banks continue monetary easing
• China records significant trade deficit in January and February
• Hungary may become first country to face EU financial sanctions

In the United States, the Federal Reserve Bank embarked on a new scheme of quantitative easing (QE) aimed at lengthening the?maturity of its securities holdings. The Fed is planning to purchase $400 billion in Treasury bills with maturities of 6 to 30 years?and to sell an equal amount of short-term holdings by the end of June. In the euro area, as its statutes do not allow the ECB to act?as a lender of last resort for financing of sovereign debts, the ECB has launched two Longer-Term Refinancing Operations (LTRO)?since December 2011. These operations have provided commercial banks with three-year loans totalling more than ?1 trillion, at?an interest rate of 1 per cent, well below yields on government bonds of many euro zone countries. The Bank of Japan announced?an increase in the size of the Asset Purchase Programme by about 22 trillion yen. The additional resources will be used to purchase?Japanese government bonds.

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With the continuation of the QE, the balance sheets of these central banks have been expanded rapidly. Liabilities have also increased commensurately, mainly taking the form of excess reserves of commercial banks deposited with the central bank. As a result, the money supply has increased significantly in these economies.?

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