BoE cuts interest rate in response to coronavirus

Ridhima Sharma
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BoE cuts interest rate in response to coronavirus

The Bank of England has announced an emergency cut in interest rates to help the economy in the middle of coronavirus outbreak.

At the special meeting ending on 10 March 2020, the Monetary Policy Committee (MPC) voted unanimously to reduce Bank Rate by 50 basis points to 0.25%. 

As per the statement, the reduction in Bank Rate will help to support business and consumer confidence at a difficult time, to bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance.  

The Bank will also introduce a new Term Funding Scheme and has cut the UK countercyclical capital buffer rate to 0%, down from 1%, to help banks keep lending. The current QE policy is unchanged at £435bn in gilts and £10bn in corporate bonds.

The Bank's Prudential Regulation Authority (PRA) is also banning UK banks from using their newly released reserves to pay higher dividends or bonuses.

The rate cut comes just hours before the British finance minister Rishi Sunak's press conference, which observers hope will result in tax cuts and spending programs as the coronavirus threats increase.

The pound briefly devalued slightly against both the euro and the US dollar in the early morning.

After last week's surprising intervention by the Federal Reserve and today's BoE rate cut, global monetary policy measures now seem to be rolling. Tomorrow is the eagerly awaited ECB meeting, which will probably also announce extensive expansionary plans.

 

A version of this article was first published by InvestmentEurope

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