Bank of England Cuts Interest Rates
The Bank of England cuts interest rates to counter the impact caused by the COVID-19.
The scheme aims to support small and medium-sized companies. New steps are being laid out to help commercial banks lend more.
The Monetary Policy Committee voted unanimously at a meeting ending on 10 March 2020 to reduce bank rate. The Bank of England said the reduction will be by 50 basis points to 0.25%.
In other forex news, markets have already priced in a second rate cut from the U.S. Federal Reserve this month. The plunge in oil prices sparked a global equity sell-off on Monday. This raised expectations of further policy-easing by some of the world’s central banks to limit the economic impact of the outbreak.
Economic Damage Caused by the Outbreak
The spread of COVID-19 prompted the Bank of England to make an emergency move because of its impact on their economy. Worldwide, it has caused flight cancellations, panic buying and quarantine measures. As of this morning, the UK has 382 confirmed cases including the country’s health minister Nadine Dorries.
The spread of coronavirus is impacting all major economies and FX markets, pushing them to a recession.
The BOE said risky assets and commodity prices have fallen sharply and government bond yields reached all-time lows. It has been consistent with a marked deterioration in risk appetite and in the outlooks for global and UK growth. Indicators of financial market uncertainty have reached extreme levels.
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Bank of England’s Currency Drops Immediately
The lock-down in Italy and oil-price war among oil-exporting nations created a major sell-off on Monday. Sterling dropped from $1.293 to $1.289 immediately following BOE’s rate cuts decision. In forex trading, the FTSE 100 went up 1.5% higher.
Jim O’Neill, chair at UK thinktank Chatham House thinks the rate cut is a mistake. He doesn’t see what a rate cut will accomplish if they are encouraging people to stay at home. He said it’s too soon and they might need these bullets if demand gets a lot weaker.
Rishi Sunak, the country’s finance chief will announce new fiscal stimulus to tackle the impact of the outbreak. Karen Ward, chief market strategist at JPMorgan Asset Management believes targeted fiscal measures would prove more effective than rate cuts. Interest rate cuts will help, so long as they are playing the supporting act to pro-active government stimulus, she added.
