In an unscheduled meeting that took place yesterday, the Monetary Policy Committee (MPC) of the Bank of England decided to boost its already accommodative asset-purchasing program even more.
This was the second such emergency meeting of the Committee in March, which is in response to the continually evolving economic fallout from the COVID-19 pandemic and the resulting market rout.
The BOE decided to cut the underlying interest rate by 15 basis points, and as a result of that, the rate currently stands at 0.10 per cent. The Committee accepted the near-negative interest rate with a 0-9-0 majority, which illustrates the urgency of the policy.
In addition to the rate cut, the Bank also decided to increase the envelope of its asset-purchasing program by £200 billion.
“the MPC judged that a further package of measures was warranted to meet its statutory objectives. It therefore voted unanimously to increase the Bank of England’s holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by £200 billion to a total of £645 billion, financed by the issuance of central bank reserves”
The mechanism is meant to support the reeling British business and economy. It comes after Boris Johnson's cabinet decided to drop its initial ‘Herd Immunity Strategy” approach to tackling the coronavirus threat.
Amidst these structural changes in the British Government’s virus agenda, the BOE’s liquidity mechanism is going to have an even more profound impact on the struggling business sector. Investors and market experts are already starting to price in the likely consequences.
Meanwhile, the pound finally managed to generate some moderate gains after diving to a 35-year low. The GBPUSD jumped by 2.40 per cent since yesterday following the release of BOE’s decision and the temporary suspension of the global demand for the dollar.
GBPUSD 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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