FRR 2016 ANNUAL REPORT10
MONETARY POLICIES STILL HIGHLY ACCOMMODATIVE, BUT HAVING DIMINISHING EFFECTS
Central banks were even more cautious in pursuit of their monetary policy, mainly because they had a number of adverse factors to deal with: drop in commodity prices, fears about China and emerging countries, financial market losses at the start of 2016, the Brexit vote, and difficulties for the banking industry in several European countries.
Two of the main central banks followed a highly expansionist monetary policy in 2016, with unorthodox bond buying programmes: the Bank of Japan and European Central Bank. To avoid any squeeze on finances after the Brexit vote, the Bank of England showed a high degree of responsiveness, deciding to lower its key interest rate from 0.5% to 0.25% during the summer, and to resume its bond buying programme, which had been frozen since mid 2012.
Consequently, these three monetary institutions balance sheets improved considerably over the year. Only the US Federal Reserve held tight in 2016, having completed its last asset buying programme in the fourth quarter of 2014. The Fed was the only major western central bank to really begin normalising its monetary policy, albeit very gradually, with an initial rate increase in December 2015 and a second in December 2016.
Central banks balance sheet base 100 at 31 December 2006
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Federal Reserve European Central Bank
Bank of Japan Bank of England