After the first emergency rate cut since the global financial crisis of 2008, Bank of England Governor Mark Carney said that the central bank will take all necessary steps to support the country’s economy. Speaking at a press conference on measures to respond to COVID-19 economic shock, Carney said that the Bank of England is ready to take more action if necessary to defend the economy against the epidemic.
On March 10, the Monetary Policy Committee (MPC) held a special meeting and unanimously voted to reduce Bank Rate by 50 basis points to 0.25 per cent. It also voted to introduce a new Term Funding scheme with additional incentives for Small and Medium-sized Enterprises. The other major policy decisions included maintaining the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.
“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,” said the central bank in a statement.
Christine Lagarde, the head of the European Central Bank and former International Monetary Fund (IMF) chief, reportedly warned Europe of a 2008-style major economic shock. However, Carney opined that the current crisis is different from 2008 as the banking sector has transformed itself and is much stronger than a decade ago.
Coronavirus outbreak has severely impacted the global economy, especially oil-dependent economies after a major fallout between the Saudi-led Organisation of the Petroleum Exporting Countries (OPEC) and Russia, on production cuts. OPEC wanted Russia to join them in large production cuts in the wake of the novel coronavirus outbreak but Russia refused to oblige OPEC.
Saudi retaliated with slashing the prices of crude oil by nearly 10 per cent on March 8 which caused a bloodbath in the share market. Mounting worries over coronavirus and dramatic price cuts of crude oil brought a domino effect on March 9 and S&P 500 dived nearly seven per cent triggering a circuit breaker that halted trade for 15 minutes.