Bank of England cuts rates to 0.1%, ramps up bond-buying

By William Schomberg and David Milliken LONDON (Reuters) - The Bank of England cut interest rates to 0.1% on Thursday, its second emergency rate cut in just over a week, and promised 200 billion pounds of bond purchases in a fresh attempt to shield Britain's economy from the coronavirus outbreak. The BoE's Monetary Policy Committee voted unanimously for the cut to the benchmark rate -- which had been slashed to 0.25% from 0.75% on March 11 -- and to restart purchases of government bonds and corporate debt for the first time since 2016. Total asset purchases will rise to 645 billion pounds, and be completed 'as soon as operationally possible' in a bid to stem market turmoil that had pushed sterling to a 35-year low and caused British government bond prices to tumble.

Reuters March 20, 2020 01:05:33 IST
Bank of England cuts rates to 0.1%, ramps up bond-buying

Bank of England cuts rates to 01 ramps up bondbuying

By William Schomberg and David Milliken

LONDON (Reuters) - The Bank of England cut interest rates to 0.1% on Thursday, its second emergency rate cut in just over a week, and promised 200 billion pounds of bond purchases in a fresh attempt to shield Britain's economy from the coronavirus outbreak.

The BoE's Monetary Policy Committee voted unanimously for the cut to the benchmark rate -- which had been slashed to 0.25% from 0.75% on March 11 -- and to restart purchases of government bonds and corporate debt for the first time since 2016.

Total asset purchases will rise to 645 billion pounds, and be completed "as soon as operationally possible" in a bid to stem market turmoil that had pushed sterling to a 35-year low and caused British government bond prices to tumble.

"Over recent days, and in common with a number of other advanced economy bond markets, conditions in the UK gilt market have deteriorated as investors have sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves," the British central bank said.

"As a consequence, UK and global financial conditions have tightened."

Since the BoE last met, Prime Minister Boris Johnson has urged people to avoid meeting in bars and restaurants and ordered the indefinite closure of schools from Friday, as a rise in coronavirus cases forced action he had hoped to delay.

Many businesses have warned the measures will push them into bankruptcy, while supermarkets have been stripped bare by Britons fearful they will be confined to their homes by the virus.

Most of the extra debt the BoE will buy will be British government bonds, it said as it followed other central banks around the world in ramping up stimulus efforts.

Karen Ward, chief market strategist for Europe at JP Morgan Asset Management, said the BoE's willingness to buy government debt would help finance efforts to combat the virus more smoothly.

"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," she said.

The pound, which on Wednesday sank to a 35-year-low as investors rushed into U.S. dollar assets, initially rallied as much as 1.3% to the day's highs after the BoE's announcement, but at 1605 GMT was up just 0.7%, barely changed from before.

Yields on British government bonds fell sharply, reversing some of a steep rise that earlier on Thursday had put them on course for their sharpest two days of price declines since 1998.

Finance minister Rishi Sunak, who on Tuesday announced 330 billion pounds of loan guarantees and 20 billion pounds of direct support for business, welcomed the BoE move and said again he was ready to take further steps to support the economy.

On Tuesday, the BoE also launched a scheme to buy a form of debt issued by large, investment-grade companies, known as commercial paper. Bailey said on Wednesday he would consider widening access to the scheme.

The next scheduled MPC meeting is due to conclude on March 25, with policy minutes due on March 26.

(Writing by William Schomberg; Editing by Catherine Evans)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.