Central Banks act to counter Covid-19

As policymakers, markets and economies are confronted by the spread of Covid-19, key Central Banks have acted this morning to support economies and to maintain the flow of credit. Below is a recap of this morning’s announcements and measures undertaken by central banks. RBNZ: The RBNZ was scheduled to meet next Wednesday the 25th of March and the market had priced in 43bp of cuts for that meeting. This morning the RBNZ delivered a larger than expected emergency 75bp rate cut, taking the Overnight Cash Rate (OCR) to 0.25%.

As policymakers, markets and economies are confronted by the spread of Covid-19, key Central Banks have acted this morning to support economies and to maintain the flow of credit. Below is a recap of this morning’s announcements and measures undertaken by central banks.

RBNZ:

The RBNZ was scheduled to meet next Wednesday the 25th of March and the market had priced in 43bp of cuts for that meeting. This morning the RBNZ delivered a larger than expected emergency 75bp rate cut, taking the Overnight Cash Rate (OCR) to 0.25%. 

The RBNZ confirmed they were committed to holding the OCR at this level for the next 12 months and that if further easing was required it would be via large scale purchase of government bonds. The RBNZ also confirmed that the OCR meeting previously set down for the 25th of March would not be taking place.

FOMC:

In perhaps the most aggressive easing measures ever undertaken by the FOMC in one step, at an emergency meeting this morning, the Feds Funds rate was reduced by 100bp to 0%-0.25%. The FOMC provided forward guidance confirming that interest rates would stay at this level until “its is confident that the economy has weathered recent events and is on track to achieve its maximum employment and stability goals.” 

The FOMC also committed to at least $700bn in Quantitative Easing (QE) purchases in the coming months across Treasury securities and mortgage backed securities and announced other liquidity measures designed to alleviate further dislocation in credit and funding markets.

BoC: 

After cutting rates by 50bp from 1.75% to 1.25% at its last interest rate meeting just 10 days ago, the BoC cut rates this morning by another 50bps, taking the cash rate down to 0.75%. The rate cut was announced in conjunction with a Business Credit Availability Program package from the Canadian Government aimed at supporting business. 

RBA:

The RBA in an unscheduled press release this morning noted it would be active in supporting market liquidity via the purchase of government bonds in the secondary market and by expanding its open market repo operations.

It also flagged further measures would be announced this Thursday which has led to speculation it will cut rates by 25bp and announce the start of its own QE program. The RBA’s preferred form of QE is expected to be via yield curve control (YCC) which involves targeting a longer-term interest rate and buying as many bonds as required to keep rates at the target.

Market Reaction:

With fear and uncertainty remaining the dominant narrative in markets in the short term, this morning’s moves by Central Banks have done little to prevent another leg lower in risk assets. In the medium term they are expected to be supportive of fractured credit, funding and equity markets.

Source Tradingview. The figures stated areas of the 16th of March 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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