THE withdrawal of the quantitative-easing schemes pursued by central banks risks sparking volatility in financial markets, Fitch Ratings' sovereign debt expert Ed Parker has warned.
In an effort to boost economic growth since the credit crunch, the Bank of England has so far bought up £375 billion of mostly Government bonds while the Federal Reserve has pumped nearly $2 trillion into the economy of the United States since 2008 via similar asset purchase programmes.
Bank of Japan and the European Central Bank have their own schemes.
But worries that central banks are preparing to unwind these schemes has already unsettled financial markets in recent weeks.
Mr Parker, managing director for sovereigns at credit ratings agency Fitch, said: "Concerns are turning to whether world growth is too reliant on central bank stimulus."
Other concerns include whether there is too much money "swishing" around the financial system, he said, and the timing and effect of reversing this loose monetary policy.
Figures from McKinsey show that after the buying spree of the past few years, 23% of government debt is owned by central banks, in part due to the Chinese and Swiss governments building foreign exchange reserves.
Mr Parker played down the chances of a sudden shock: "The exit will be pretty gradual. It will be well signposted. We expect the Fed to go first."
He noted: "Most central banks are still loosening monetary policy."
The stimulus provided by central bank action has seemingly prevented depression and allowed borrowers access to finance while inflation in the developed countries has remained reasonably anchored, Mr Parker said.
But the potential risks include that it could inflate asset bubbles, prompt excessive capital flows into emerging markets and, crucially, that exit from the measures could trigger volatility
Mr Parker told Fitch's global banking conference in London: "The issue of exit will be something that dominates market sentiment over the next couple of years."
Such is the nervousness of investors that the Bank of Japan's decision yesterday to leave its current stimulus measures unchanged prompted another bout of selling by equity investors.
Fitch predicts global growth of 2.2% this year and 2.8% this year amid signs of strengthening economic activity.
But the firm warned that high levels of debt and longer term headwinds, such as the impact of ageing populations, could weigh on growth.
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