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By Jonathan Baltora, Portfolio Manager of AXA World Funds Universal Inflation Bonds*
The post-global financial crisis (GFC) economy central banks have massively expanded their balance sheets through direct bank lending and in some instances, public and private large scale asset purchase (LSAP) plans. We find that balance sheet expansion has very often led to currency depreciation despite central banks denying this was the objective. As a result, the term “currency war” has been quick to emerge, to describe an environment of competitive backdoor currency interventions aimed at boosting competitiveness. We believe that currency shocks are important for future inflation and that backdoor currency depreciations have helped central banks to reach inflation targets...
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