Published: Sun, March 22, 2020
Markets | By Otis Pena

Coronavirus: UK interest rates slashed again in emergency move

Coronavirus: UK interest rates slashed again in emergency move

The emergency measures by the BoE have been mirrored by other central banks around the world, with the US Federal Reserve also cutting rates to near zero to shore up the US economy against the coronavirus.

Repayment interest rates remain unchanged.

The cut to 0.1 per cent, the lowest ever in the 320 year history of England's central bank, came just days after the rate was cut by half a per cent to 0.25 per cent, again a move meant to keep the economy moving by making the cost of borrowing money cheaper.

Cuts like this are made to get the economy moving in hard times but some experts within the field question if it goes far enough.

The bank's monetary policy committee also voted to buy £200 billion ($US230 billion) worth of United Kingdom government bonds and investment-grade corporate bonds.

"In line with government guidelines, the Bank of England has decided that it will not hold media lock-ins for its major publications for the foreseeable future", it said in a statement.

"The Financial Policy Committee and the Prudential Regulation Committee expect that all elements of banks' capital and liquidity buffers can be drawn down as necessary to support the economy through this temporary shock".

Most of the additional debt the BoE will purchase might be British authorities bonds, it stated.

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The fresh rate cut takes interest rates to the lowest they can feasibly go, said Jeremy Thomson-Cook, chief economist at payments company Equals Group.

FILE PHOTO: A hen flies previous The Bank of England within the Metropolis of London, Britain, December 12, 2017.

Current and savings accounts across the country will now likely have their interest rates lowered, meaning savers will see lower returns on their cash for the foreseeable future.

Perhaps even more significantly, the programme of purchases of Government bonds - the financial products the Treasury sells to fund public spending - has been increased again by the biggest ever amount - £200bn.

The Bank of England released a coronavirus bill today.

The impact of this should be not just to lower short-term interest rates, but also bring down longer term lending rates of over five or 20 years or longer. The rate cut is mostly just a signal - trimming another 15bp to 0.10 percent will have a negligible impact, as rates are already so low.

Clearly, monetary policy remains a blunt tool to deal with a pandemic and the resulting economic fallout.

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