Analysts at Bloomberg reported that the central banks of the G7 countries are reducing their balance sheets and raising interest rates to prevent inflation from rising.
As Bloomberg analysts note in the report, the G7 countries are tightening their monetary policy – central banks are reducing their balance sheets and raising interest rates. By the end of the year, the G7 countries will reduce their balance sheets by about $410 billion, experts say.
Banks added $2.8 trillion to their balance sheets last year due to the pandemic. This helped support the economy during the lockdown. However, such a sharp decline could lead to the biggest inflation in a decade and affect the exchange rate and liquidity of the dollar.
According to experts, the reduction in liquidity in the bond markets will most affect real estate and cryptocurrencies. The DeFi market will also be affected by the new policy of central banks. According to analysts, the cryptocurrency industry is still heavily dependent on the traditional financial sector, so we should expect lower prices for digital currencies in the future.
Central banks say shrinking balance sheets by lowering the cost of bonds, rather than by selling them sharply, should not be too devastating to the economy. However, according to Gene Tannuzzo, head of fixed income at Columbia Threadneedle Investments, rising short-term rates and commodity prices pose a threat not only to the US, but to the whole world.
Earlier, Reuters analysts said that on May 4, the markets will see a big jump in quotations due to a 50 basis point increase in fund rates. According to experts, Fed chief Jerome Powell should announce the rate hike.
