Bank of England slashes funding rates to tackle COVID-19 chaos
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Bank of England slashes funding rates to tackle COVID-19 chaos 19 March 2020London Reporter: Maddie Saghir
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The Bank of England (BoE) has reduced its secured overnight funding rate by 15bps to 0.1 percent amid widespread market volatility fuelled by the COVID-19 pandemic.
The cut comes just over a week after the Bank of England cut the bank rate by 50bps to 0.25 percent from 0.75 percent in an emergency move to help UK businesses and households deal with the outbreak.
In addition to cutting the rate back further, the Monetary Policy Committee (MPC) has today been voted to increase the central bank's holdings of UK government bonds and sterling non-financial investment-grade corporate bonds.
This will be increased by £200 billion to a total of £645 billion, financed by the issuance of central bank reserves.
It has also been agreed that the BoE should enlarge the term funding scheme with additional incentives for small and medium-sized enterprises, also financed by the issuance of central bank reserves.
The bank explains in today's statement that the majority of additional asset purchases will comprise of UK government bonds and will be completed as soon as “operationally possible, consistent with improved market functioning”.
“The spread of COVID-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary,” explains the BoE.
Meanwhile, the bank will issue further guidance to the market in due course with the next regularly scheduled MPC meeting due on 25 March.
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