BOE Goes All In, Cuts Rates (Again), Ramps Up QE

The hits kept comin’ on Thursday, as the Bank of England delivered yet another rate cut and expanded QE in the latest attempt by monetary policymakers to counter the economic effects of the virus containment measures enacted across economies.

The move comes a mere eight days after the BOE slashed rates by 50bps and rolled out a series of measures aimed at supporting the economy and boosting the effectiveness of stimulative fiscal policies.

The rate cut is 15bps, taking Bank Rate to 0.1%, a record low.

“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 BOE said, in a statement, adding that its job “is to help to meet the needs of UK businesses and households in dealing with the associated economic disruption”.

After recapping the actions taken on March 11 (see here) and providing a handy summary of the UK’s commercial paper funding facility, the BOE says that “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 held an additional special meeting on 19 March”.

In other words, considering how volatile markets have been, and how draconian the containment efforts are likely to be if governments have any hope of stopping the virus’s spread, the BOE decided things have gone from “emergency” to “five-alarm blaze” in the space of a little over a week.

The bank notes that, like bond markets in other developed economies, the gilt market isn’t functioning properly, and that’s led to a tightening in financial conditions.

So, the MPC voted unanimously to cut rates to 0.1% and buy an additional £200 billion in government and corporate bonds. They’re also upsizing the TFSME scheme (see link above).

“According to our rates team, this could leave the Bank of England holding up to 38% of the gilt market, once the net supply is taken into account and depending on what the ultimate split between government/corporate purchases is, although we’d expect the vast majority to be in gilts”, ING said.

If you’re wondering when these purchases will be made, the answer is “as soon as is operationally possible, consistent with improved market functioning”.

“It’s a step in the right direction, and roughly in line with the size of the ECB’s combined purchases this year”, TD’s James Rossiter remarked. “What’s important… is that the composition of purchases is flexible, and they’ll buy as fast as possible”.

This comes just days into new Governor Andrew Bailey’s tenure. Apparently, he’s already got a nickname. Somebody at Aberdeen Standard called him “Bazooka Bailey”.

To summarize, in the last 24 hours, we’ve seen the following:

  1. Australia cut rates and unveil QE
  2. The ECB roll out a new, €750 billion asset purchase program
  3. The Fed unveil a money market liquidity facility
  4. The Fed expand swap lines beyond the G-7
  5. Taiwan cut rates
  6. The Philippines cut rates
  7. Indonesia cut rates

Again, that is all in the last 24 hours.

As a reminder, sterling fell to the lowest since 1985 on Wednesday amid what some analysts described as FX “armageddon”.

2-year yields in the UK fell more than 15bps Thursday, the most since Brexit.


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