Central Banks – Race to the Bottom – Again?


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By: Stuart Cowell


The latest Central Bank to act (in another surprise and unscheduled announcement) is the Bank of England. The BoE slashed rates by 50 basis points (bp) to address Covid-19 impact. The BoE cut bank rate to 0.25% from 0.75%, saying that the decision was made at a special meeting on March 10. There will also be a new funding scheme to support lending to small businesses impacted by the fallout from the virus. Although that is the plan these funds (expected to be around 100 million GBP) usually end up supporting the UK mortgage market. At the press conference, just completed, Carney emphasized that the total package was a “big package, a big package” a number of times and clearly wanted that to be the clear message. But also caveating the message that the COVID-19 impact is likely to be short, sharp potentially significant but ultimately short-lived. The first emergency move since the financial crisis highlights the impact of the virus on the economic outlook and comes a week after the Fed cut rates by 50 bp and a day before the ECB meeting, which is also expected to bring additional easing measures. The decision was unanimous and the bank said in a statement that “although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months”.

President Trump continued the pressure on the Fed yesterday with tweets aimed squarely at Jay Powell and the slow response (in his opinion) of the FED to cut rates. The ECB is expected to cut rates by at least 10bp tomorrow and with more stimulus also likely. The FOMC and BOJ also have scheduled meetings next week with more action by both anticipated, then if not before. Volatility and uncertainty persist and volumes in markets all remain elevated.

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