Bank of England cuts interest rate to record low 0.1%

Daniel Fowler
March 22, 2020

The Bank of England cut its main interest rate to a record-low 0.1 per cent from 0.25 per cent on Thursday (March 19), to tackle an "economic shock" from the coronavirus pandemic.

"It therefore voted unanimously to increase the Bank of England's holdings of United Kingdom government bonds and sterling non-financial investment-grade corporate bonds by £200 billion to a total of £645 billion, financed by the issuance of central bank reserves, and to reduce Bank Rate by 15 basis points to 0.1%".

European stocks rebounded on Friday after suffering major losses over the last few weeks, with the stock market responding positively to central banks and governments taking emergency action to limit the economic impact of Covid-19.

It also ramped up its bond-buying program, adding another 200 billion pounds - or about $233 billion.

All this comes during Andrew Bailey's first week as governor of the Bank of England.

The BoE said it would "keep under review the case for participating in the primary market", suggesting it could eventually buy bonds from the government or companies directly rather than on secondary markets as it does now.

"Now we have to consider what the probably scale of authorities financing is, as a result of that's clearly going to amplify by the markets", Bailey advised reporters.

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Last week the British central bank announced that banks could release all the capital they hold in a special 'counter cyclical buffer to support loans worth up to 190bn pounds ($223bn).The BoE's Prudential Regulation Authority (PRA), which supervises banks, said yesterday that new capital rules from the global Basel Committee due to be phased in over coming years may also have to be pushed back.

In making its decision the BoE said the £350bn of support for the United Kingdom economy announced by Chancellor Rishi Sunak was not enough on its own and a "further package of measures was warranted".

Interest rates have been decreased to 0.1% from 0.25%.

The Bank of England's plan to buy £200bn more bonds is aimed at fighting that effect. Nomura economist George Buckley said.

Following the latest BoE action, sterling jumped 1.0 per cent to $1.1719, having hit the lowest level for 35 years on Wednesday as markets doubted enough was being done by the United Kingdom government and BoE to address the fallout.

"The situation has developed very differently from our forecasts, ' the Bank of Russian Federation said in a statement, citing the impact of 'the spread of the epidemic and a sharp fall in the oil price".

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