Almost half of fund managers think central banks are pumping too much money into the economy, according to a new survey ahead of the latest monetary policy decision by the European Central Bank (ECB) tomorrow.
Some 48 per cent of fund managers surveyed by Bank of America Merrill Lynch think global monetary policy is too accommodative, the highest figure since April 2011. The managers who responded manage assets worth around £450bn.
The ECB will announce its latest decision on monetary policy at 12:45pm tomorrow, while the bank’s president, Mario Draghi, will face questions from journalists at 1:30pm.
While most economists do not expect any change in monetary policy to be announced explicitly after Eurozone inflation stayed stubbornly low, Draghi’s words will be closely scrutinised for signs the ECB is preparing the market for an announcement on tapering its asset purchases at its September meeting.
Ronan Carr, European equity strategist at BofA Merrill Lynch, said: “Investors expect Eurozone inflation to rise and find monetary policy too stimulative, putting the ECB’s signalling powers to the test.”
Investors are nervous about the reaction to the so-called normalisation of monetary policy, with more than a quarter of the investors surveyed saying a crash in bond markets was the biggest tail risk – a risk that would cause an abnormally big move in asset prices. Bond prices could slump if central banks sell off their holdings too quickly.
Meanwhile a similar proportion of managers surveyed said a policy mistake by the ECB or the US Federal Reserve was the biggest tail risk facing global markets.
“Fund managers’ biggest fears are a shock coming from bond markets or central banks,” said Michael Hartnett, chief investment strategist at the US investment bank. “Too many investors see the Fed as a likely negative catalyst.”
Both the ECB and the Fed, as well as the Bank of England, are trying to tighten monetary policy, which was relaxed after the global financial crisis in an effort to boost the economy.
The ECB is currently buying around €60bn (£53bn) in assets every month, with a decision needed on how much to extend the programme which ends in December. Meanwhile the US Federal Reserve is planning further rate rises and the reduction of its balance sheet, which has remained at $4.5 trillion since it stopped buying more bonds.