The fear of the corona virus has been crumbling for weeks, and the crash followed last week. The US Federal Reserve is now reacting with a key rate cut that is as surprising as it is strong.
The US Federal Reserve surprisingly cut interest rates because of the corona virus. It is now in the range of 1.0 to 1.25 percent, as the Fed announced. That is half a percentage point less than last. Faced with the widespread coronavirus crisis, monetary watchdogs and governments are preparing a strong response, according to UK central bank chief Mark Carney. The central bankers are in close contact, he said to a parliamentary committee in London.
The European Central Bank (ECB) is working specifically on targeted cash injections for companies affected by the consequences of the epidemic, as three people familiar with the considerations told Reuters. The virus epidemic is the biggest threat to the global economy since the financial crisis more than ten years ago, according to the industrialized nations organization OECD, and has triggered fear of a global recession. Given this horror scenario, the seven leading industrialized countries (G7) are preparing a joint statement to be released this Tuesday or Wednesday.
As announced from G7 circles, the countries promise to cooperate in order to contain the damage of the epidemic to the economies. The G7 countries, which include Germany, would only underline their willingness to work together to mitigate the economic impact. However, an insider pointed out that the text of the declaration could still change.
ECB decision would come Wednesday
The finance ministers of the European Union are unlikely to take concrete action on the coronavirus epidemic on Wednesday, insiders say. At a conference call between the 27 finance ministers and the European Central Bank, the main focus would be on sharing information and advising on the best emergency measures, Reuters learned from people familiar with the situation: “I do not expect any decisions,” said one insider.
In the fight against the coronavirus crisis, the ECB insiders are examining whether long-term targeted credit injections (TLTRO) should benefit small and medium-sized companies in particular. The work is not yet complete. The reason is that small and medium-sized companies generally do not get loans so easily compared to large corporations. Therefore, they would also feel the consequences of the virus crisis more clearly. The ECB declined to comment.
Unlike the US Federal Reserve, however, the ECB no longer has much scope for interest rates. Your key interest rate is already at a record low of 0.0 percent. A reduction to below zero is excluded by most experts. In addition, banks have had to pay penalty interest since 2014 if they park overnight with the ECB. This is intended to increase the pressure on financial institutions to spend money in the form of loans and thus to support the economy.
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