BoE cuts rates to 0.1% in latest pandemic response
Boosts QE measures
The Bank of England (BoE) has cut its interest rate by 15 basis points to 0.1% as the central bank moves to reduce the “economic shock” stemming from the coronavirus pandemic.
After an emergency meeting on 19 March, the bank's Monetary Policy Committee (MPC) also voted in favour of an additional £200bn of government bonds and sterling non-financial investment-grade corporate bonds purchases, bringing the total to £645bn.
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The BoE explained the decision was necessary following action taken by the bank and the Chancellor Rishi Sunak throughout the month to tackle the economic impact of the pandemic.
It said the MPC had now determined that the bank's measures need to go further, and also voted unanimously to enlarge the Term Funding Scheme for SMEs.
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The BoE also explained that the majority of additional asset purchases will comprise UK government bonds, which will be "completed as soon as is operationally possible, consistent with improved market functioning".
Ahead of its next MPC meeting on 25 Match, the BoE said it will issue further guidance to the market in due course.
Commenting on the BoE's latest move, chief market strategist for EMEA at J.P. Morgan Asset Management Karen Ward said the boost for quantitative easing "will have the most significant impact, both in terms of the market reaction, but also a solution to the economic challenges presented by the COVID-19 virus".
She added: "The support to the economy and health system will require vastly higher government borrowing. The central bank showing willing to buy government debt will ensure the market can absorb this additional issuance without undue stress."
Kevin Doran, chief investment officer at AJ Bell, said that overnightthe ECB "rolled out the QE cannons" and now, "in an effrot to be seen 'doing something'", the BoE has announcd an emergency rate cut.
"It is the solution of yesteryear when liquidity and credit were the problems. This time it truly is different - with a workforce on lockdown, there is a production chasm about to open up," he warned.
"To fill the gap policy makers need to be working with governments to introduce formal debt relief. Not forbearance, not interest holidays, but genuine relief from servicing debts as the world enters its enforced hibernation."
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