Bank of England Joins Panic Parade With Emergency Rate Cut To 0.1%, Boosts QE By £200

If traders are looking for central bankers to calm nerves they will have to wait, because in the past two days not an hour seems to pass without some central bank freaking out and announcing an emergency easing measure, many of which pulled right out of the global financial crisis playbook. And sure enough, moments ago the Bank of England – in its second emergency move of the Global Covid Crisis – joined the overnight parade of similarly panicking RBA, ECB, BOJ and Fed, when it announced that as part of its covid-19 response it would cut rates to 0.1% from 0.25% in a unanimous emergency move, and boost QE, increasing its holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by £200 billion to a total of £645 billion.

As FX strategist Viraj Patel notes, the “BoE previously saw QE as a credit-easing measure too at times of market stress. So makes sense. BoE have now laid their cards on the table. Not a lot left in the monetary tank”

Go big or go home from Bank of England. 15bps cut & £200bn QE (mainly govt bonds). Big purchases. BoE previously saw QE as a credit-easing measure too at times of market stress. So makes sense. BoE have now laid their cards on the table. Not a lot left in the monetary tank $GBP pic.twitter.com/Bs0ibnsnlr

— Viraj Patel (@VPatelFX) March 19, 2020

Perhaps in this context, it is not that strange that this announcement had virtually no effect on either the GBP, which remains depressed after its fastest drop in history, or on asset prices.

The full release is below:

Monetary Policy Summary for the special Monetary Policy Committee meeting on 19 March 2020

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 should be temporary.  The role of the Bank of England is to help to meet the needs of UK businesses and households in dealing with the associated economic disruption.

On 11 March, the Bank of England’s three policy committees announced a package of measures to support UK businesses and households through this period.  In his Budget on the same day, the Chancellor of the Exchequer announced a number of fiscal measures with the same aim.  On 17 March, this combined package of measures was complemented by the announcement by HM Treasury of the Covid-19 Corporate Financing Facility (CCFF), for which the Bank will act as HM Treasury’s agent.  By purchasing commercial paper, the CCFF will provide funding to non-financial businesses making a material contribution to the UK economy to support them in paying salaries, rents and suppliers while experiencing the likely disruption to cashflows associated with Covid-19.

In light of actions to tackle the spread of the virus, and evidence relating to the global and domestic economy and financial markets, the Monetary Policy Committee (MPC) held an additional special meeting on 19 March.  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.  As a consequence, UK and global financial conditions have tightened.

At its special meeting on 19 March, the MPC judged that a further package of measures was warranted to meet its statutory objectives.  It therefore voted unanimously to increase the Bank of England’s holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by Stg 200 billion to a total of Stg 645 billion, financed by the issuance of central bank reserves, and to reduce Bank Rate by 15 basis points to 0.1%.  The Committee also voted unanimously that the Bank of England should enlarge the TFSME scheme, financed by the issuance of central bank reserves.

The majority of additional asset purchases will comprise UK government bonds. The purchases announced today will be completed as soon as is operationally possible, consistent with improved market functioning.  The Bank will issue further guidance to the market in due course.

We wonder which central bank will panic next, and if the market will actually notice this time.