The UK central bank cuts its key interest rate in the face of the coronavirus epidemic. The Bank of England announced in London on Wednesday that it would be reduced from 0.75 to 0.25 percent outside of the regular meetings. It was the first rate cut since August 2016.
“Although the extent of the economic shock from Covid-19 is highly uncertain, activity in the UK is likely to weaken significantly over the coming months,” said the BoE.
The central bank also declared its willingness to add more if necessary. They also want to coordinate with the Ministry of Finance and other central banks. The British pound came under pressure after the announcement: the price fell to $ 1.2847 after having previously stood at 1.2936.
Package of measures is coming
The Bank of England also announced a package of measures to deal with the virus crisis. For example, small companies are to be provided with an affordable financing instrument in the next twelve months. “These measures will help keep companies and people at work and prevent a temporary interruption from causing long-term economic damage,” the reasoned. In addition, it reduced the so-called domestic countercyclical capital buffer (CCyB) for banks to zero percent from 1.0 percent. This buffer is intended to ensure that banks save additional capital in good economic times, for example to increase their resilience in the event of an economic downturn.
Other central banks had previously eased their monetary policy, including the US Federal Reserve. The European Central Bank will decide on its course on Thursday.
Thomas Gitzel, the chief economist at the German VP Bank, analyzed that “central banks are now stepping in to help. This is a good thing, because it shows willingness to act. However, monetary policy can currently only help to a limited extent. Companies, especially small and medium-sized companies, need access to liquidity . This has to come from the states. In Europe there is a relatively dense network of state development banks. ” (reuters)
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