(New: ECB Vice President de Guindos in the second paragraph)
FRANKFURT (dpa-AFX) – In the corona crisis, the major central banks are increasingly trying to counter the nervous mood on the international financial markets – so far without resounding success. After the US Federal Reserve signaled its willingness to act on Friday, the central banks of Great Britain and Japan followed suit on Monday. The European Central Bank (ECB) also showed its willingness to deploy.
ECB Vice President Luis de Guindos said in London that the central bank is ready to act if necessary. “We remain vigilant and will closely monitor all data,” said the Spaniard. The new virus has brought additional uncertainty for growth prospects. The central bank’s monetary policy council is ready to adjust all available instruments if necessary, de Guindos confirmed.
The verbal balm of the currency keepers on the stock markets only briefly calmed down. After some significant price gains on the Asian and initially also on the European stock exchanges, there have recently been losses again in Europe. Investments perceived as safe were also in demand again after they were sold off in the early hours of trading. In the past week, many exchanges have slumped due to fear of the consequences of the virus crisis.
As early as Friday, the American central bank published a short unscheduled statement by central bank chief Jerome Powell in a rare step. It states that the US economy is still in strong shape. However, the corona virus poses a risk to economic development. “The Federal Reserve is closely monitoring developments and their impact on the economic outlook. We will use our instruments and act appropriately to support the economy.”
The Japanese central bank followed suit on Monday with a similar statement. Central bank chief Haruhiko Kuroda also signaled monetary policy support. The global financial and capital markets have recently been unstable. The reason is the growing uncertainty about the spread of the corona virus. The Bank of Japan will follow developments closely, provide sufficient liquidity and ensure financial stability.
Shortly afterwards, the central bank followed its words with action: it provided the national financial system with additional liquidity by temporarily buying government bonds. The banks were offered the purchase of government bonds worth 500 billion yen (about 4.2 billion euros). It was the first comparable campaign since 2016.
The Bank of England also made a brief statement on Monday. A bank spokesman said the central bank is working with the Treasury and international partners to ensure that all necessary steps are taken to maintain financial and monetary stability. All developments would be monitored and the effects on growth analyzed.
It is open whether and how the central banks will actually react. In the financial markets, the clearest reaction is still expected from the US Federal Reserve. Because it has the greatest room for interest rate cuts among the major central banks. In the euro zone and Japan, but also in Great Britain the key interest rates are much lower, sometimes even below the zero line. The scope for unconventional methods such as bond purchases is increasingly reaching its limits, at least in the Eurozone and Japan.
Regardless, it is questionable to what extent monetary support can help in the Corona crisis. Because the main problem does not lie in the financial system, but on the supply side of the real economy: Because large parts of the economy in China stand still and the virus spreads to other countries, the international production and supply chains are disrupted. Important preliminary products therefore do not find their way into the manufacturers’ factories, which inhibits production. Aid from monetary policy can do little to combat such disruptions./bgf/la/stk
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