BOE Cuts Rates to 0.1%, Restarts QE in Latest Virus Response

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The Bank of England cut interest rates to a record-low 0.1% and added 200 billion pounds ($230 billion) to its asset-purchase program in its latest emergency action to mitigate the economic impact of the coronavirus pandemic. The pound rose.

The decision, just days into the tenure of new Governor Andrew Bailey, saw the central bank lower rates by 15 basis points and boost its quantitative easing target to 645 billion pounds. That increase will mainly be made up of extra gilt purchases, but will also include corporate buying, and it will be completed as soon as operationally possible.

The pound extended gains, rising 0.8% to $1.1710. Gilts rallied, with two year yields dropping 17 basis points to 0.18%.

The BOE have previously indicated that 0.1% is their effective lower bound for rates. The BOE also announced it was increasing the size of its Term Funding Scheme targeted at smaller businesses.

“The spread of Covid-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but temporary,” the BOE said in the statement. “The role of the Bank of England is to help to meet the needs of U.K. businesses and households in dealing with the associated economic disruption.”

The surprise move followed an emergency Monetary Policy Committee meeting on March 19 where policy makers voted unanimously to unleash the fresh stimulus.

It’s the latest in a string of emergency action from the BOE and its counterparts around the world, after Sunday night saw the bankunite with five global counterparts, including the U.S. Federal Reserve, to ensure dollars are available around the world via swap lines. The Fed also cut rates to near zero and restarted its on QE program.

The European Central Bank launched an 750 billion euro ($820 billion) in what it called a pandemic emergency debt-buying program Wednesday. That came on top of 120 billion euros in additional asset purchases agreed last week alongside measures to pump more liquidity into the financial system and to subsidize long-term loans for banks.

Officials around the world are scrambling to respond to the spread of the coranavirus, which is forcing countries to shutter business and restrict travel. The problem for central banks is that they have already used much of the already-limited monetary-policy arsenal to fight the crisis, and have thus fair failed to assuage concern among investors.

The BOE’s latest action builds on a suite of measures from policy makers last week — including a half point rate-cut to 0.25% from 0.75% and a new program to provide easy and cheap credit — that came on a day of coordinated action with the U.K. Treasury.

The BOE’s previous asset-purchase target was a total of 445 billion pounds, with a mix of 435 billion pounds of gilt purchases and 10 billion pounds of corporate bonds.

— With assistance by Lucy Meakin

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