The Bank of England (BoE) has cut interest rates further amid the Covid-19 crisis.
At a special meeting yesterday, the Monetary Policy Committee (MPC) unanimously voted to cut interest rates from 0.25% to 0.1% and to increase holdings of UK government and corporate bonds by £200bn.
The BoE, which has just appointed Andrew Bailey as its new governor, said the decision was made because the MPC judged a ‘further package of measures was warranted to meet its statutory objectives’.
It follows similar moves from the central banks around the world. The US Federal Reserve cut interest rates from 1.25% to 0.5% on Sunday, while the European Central Bank yesterday launched £700bn emergency funding package to help the economy through the crisis.
A statement from the BoE said the MPC ‘voted unanimously to increase the BoE’s holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by £200bn to a total of £645bn, financed by the issuance of central bank reserves, and to reduce Bank Rate by 15 basis points to 0.1%. The MPC also voted unanimously that the BoE should enlarge the TFSME [Term Funding Scheme with additional incentives for SMEs scheme], financed by the issuance of central bank reserves.’
The BoE said the majority of additional asset purchases will be made up of UK government bonds. ‘The purchases announced today will be completed as soon as is operationally possible, consistent with improved market functioning,’ it added. ‘The Bank will issue further guidance to the market in due course.’
By J Gilbert (NMA)