Risk sentiment and equity markets are undoubtedly looking more buoyant today after yesterday's central bank meetings presented the markets with a number of extra liquidity and stimulus measures to help markets cope with the subdued growth outlook. First up, the BoE unexpectedly raised the asset purchase target from GBP200bn to GBP275bn, sending sterling sharply lower and raising expectations that more easing may be on the way. What is particularly shocking about the central bank's return to quantitative easing is the magnitude of the programme's expansion; before today, Adam Posen had been the lone dissenter calling for additional stimulus and for the past year had been lobbying for just a 50bn increase to the asset purchase target. This increase of 75bn therefore marks the largest commitment to asset purchases since the peak of the financial crisis back in March 2009. Considering that UK CPI is already hovering around 4.5% YoY and quantitative easing naturally puts upward pressure on inflation, the decision to undertake QE reveals that the MPC's concerns about growth are so extreme that they have outweighed the risk of sending inflation spiralling higher . Following the BoE announcement was the headline event of the day, the ECB rate decision and press conference. Speculation had been rife before the release that the central bank might be on the verge of a 25bp or even a 50bp interest rate cut, but both of these suggestions were soon disproved. Instead Trichet and his colleagues kept interest rates unchanged at 1.50%, but announced that the ECB would conduct two long term refinancing operations in October, and would resume its purchases of covered bonds from November. By providing these non-standard liquidity measures, the ECB hoped to help banks cope with funding difficulties that may arise in the face of what Trichet described as intensified downside risks. A very important shift was Trichet's assessment that risks to inflation are now broadly balanced - a significant step back from the hawkish tone we heard only a few short months ago. During the Q&A session Trichet clarified that rates in the Eurozone are already low and hence the major actions were all focused on non-standard measures. Interestingly, he referred to the decision not to cut rates as consensus, implying that the eventual decision to stay on hold was not unanimously agreed amongst members. In light of both these central banks shifting to stimulus measures and global growth showing no signs of rebound just yet, there is good reason to think that gold may start to rally once more. Precious metals have tended to outperform in the face of currency debasement, and with the BoE already back on the QE programme and the US perhaps not far behind, it looks like there may be plenty of reasons to covet gold.
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