PBOC, Norges Bank, Riksbank, BOJ Rush To Rescue Bloodied Markets With Rate Cuts, Liquidity Measures

Central banks were all over the wires Friday, as monetary policymakers rush to ensure the liquidity spigots remain open and financial conditions some semblance of loose in the face of plunging equities and widespread panic across financial markets.

The PBoC said Friday it will cut RRR by 50bps to 100bps under what it’s calling an “inclusive finance scheme”. The plan allows for an additional 100bps cut for joint-stock banks.

Ultimately, the move will provide some 550 billion yuan in long-term capital to the banking system.

The Norges Bank delivered an emergency rate cut, joining the RBA, the BOE, the BOC, and the Fed, among others, in slashing rates to cushion the global economic fallout from the coronavirus.

The 50bps cut takes the policy rate to 1%, and the central bank said it’s prepared to do more if necessary. Here’s an updated map which illustrates the scope of the global easing push in 2020:

COVID-19 cases topped 600 in Norway this week and the krone plunged to the weakest against the dollar since 1985 (see visual below) when crude prices dove following the opening salvo in the price war between the Saudis and the Russians. Donald Trump’s travel restrictions on Europe were insult to injury. Norwegian Air Shuttle ASA is down some 80% this year.

“For the NOK it should probably be positive as this move was largely expected in the markets — it shows that Norges Bank is responsive and willing to act as needed”, Handelsbanken strategist Nils Kristian Knudsen remarked.

“In the near term, activity in the Norwegian economy will decline considerably owing to the coronavirus outbreak”, Norges Bank said. “Unemployment is expected to rise. Economic prospects have also weakened on the back of the sharp fall in oil prices”.

The bank also slashed banks’ capital buffer requirements to 1% from 2.5% in a bid to boost business lending.

“The new rate path signals with 100% probability an additional 25bp rate cut in May or June”, Nordea wrote, adding that “this measure comes in addition to yesterday’s announcement from Norges Bank that it will offer banks unlimited liquidity at the key rate [and] today’s rate cut should means the F-Loan presented yesterday stand out as very attractive for banks [as] F-loans have a floating rate and will therefore be reduced accordingly when rates are cut further”.

(Nordea)

“Policy easing was looking increasingly likely, and it was really just a question of when and by how much”, ING said, in an e-mailed note. “Don’t forget that the Norges Bank tends to set its policy rate fairly mechanically, so the fall in oil prices and sharp flattening in global interest rate expectations will have both translated into sharp downward influences on its forecasts”.

The government is set to unveil stimulus on Friday. Norway, you’re reminded, has remained something of an outlier in recent years, raising rates even as global peers persisted in accommodation. The country is, of course, sitting on the largest sovereign wealth fund in the world.

Sweden, meanwhile, rolled out liquidity measures. The Riksbank said it would lend SEK500 billion to companies through banks in a bid to ensure corporates don’t lose access to credit. The new, two-year loans will come with a variable rate equivalent to the repo rate (so, 0%). The Riksbank exited negative rates in December, but will likely have to do more to combat the crisis. Here’s Nordea with a bit of color:

We expect further action from the Riksbank. First of all, more measures to support companies, and in specific via the corporate bond market, can’t be ruled out. Moreover, we expect the Riksbank to announce an extension of the QE programme. The bank will buy government bonds at an annual pace of SEK 60bn, up from the current programme of approximately SEK 30bn as planned for the second half of this year. These measures will probably be presented before the next monetary policy meeting scheduled to 27 April (announcement 28 April). We still don’t include a rate cut in our forecast as the Riksbank seems reluctant to cut rates below zero.

In case all of this wasn’t enough, the BOJ conducted another unscheduled repo on Friday and later promised to take additional steps to safeguard markets later this month. That’s in light of recent events, the bank said.

Beginning next week, the BoJ will utilize operations with long maturities to provide liquidity and will keep conducting unscheduled JGB purchases as needed. On top of that, the bank will up the number of issues of government securities it offers in its securities lending facility and is set to offer all the available JGSs it holds between March 16 and April 3.

Nikkei reported that the BoJ is now considering whether to up the the amount of commercial paper and corporate bonds it buys at its policy meeting on March 18-19.

Of course, all of this will fall short if politicians don’t step up with adequate measures, something the Norges Bank underscored Friday.

“A lower policy rate cannot prevent the coronavirus outbreak from having a substantial impact on the economy, but it could dampen the downturn and mitigate the risk of more persistent effects on output and employment” the bank remarked.