G-7 Pledges to Fight Virus Risks, Stops Short of Specific Action
(Bloomberg) -- Group of Seven finance chiefs said they’re ready to act to shelter their economies from the spreading coronavirus, though they stopped short of spelling out what specific measures they would put into place.
“We reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks,” the G-7’s finance ministers and central bankers said Tuesday in a statement following a rare conference call. They said they are “closely monitoring” the virus and its impact on economies and markets.
The statement came shortly before the U.S. Federal Reserve delivered an emergency half-percentage point interest rate cut to protect the economy from the global outbreak. Markets jumped on the news but quickly pared the gains, and President Donald Trump complained that it wasn’t enough.
U.S. Treasury Secretary Steven Mnuchin told a congressional committee on Tuesday that the Trump administration isn’t currently considering a rollback of tariffs on China as part of efforts to counter economic fallout from the virus. He also said the administration isn’t pursuing a payroll tax cut, even though Trump on Monday called on Democrats to pass such a measure.
“This administration is closely monitoring the coronavirus and its effects on public health, markets, the broader economy and supply chains,” Mnuchin told the House Ways and Means Committee after the G-7 issued its statement. “We have a very resilient U.S. economy as we go into the experience of the coronavirus.”
He told the panel he supports the Fed’s cut: “They did the right thing getting ahead of this,” he said.
Policy makers are under pressure to back up their recent pledges to shield markets and economies from the virus that spread from China, amid mounting warnings that the outbreak is propelling the world economy toward its worst year since the 2009 recession.
“G-7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase,” the statement said.
A person who took part in the G-7 audio conference call said it lasted just over 30 minutes and that no specific measures were discussed, with national responses being left to each country. Nor was there any discussion about specific central bank action, though policy makers made the point that they expect fiscal policy to take the lead in any response.
While Australia and Malaysia also cut interest rates on Tuesday, turning attenion to other major counterparts to do the same, perhaps outside of their normal meeting schedule and in a coordinated fashion.
The Fed’s move wasn’t entirely unexpected. Money markets had predicted a high chance of a 50 basis-point cut from the Fed at or before its next meeting on March 17-18. Fed Chairman Jerome Powell on Friday promised to “act as appropriate” to support the U.S.’s longest-ever expansion, a statement which helped cushion stocks after their worst week since 2008.
Traders are also betting on a 10 basis-point cut from the European Central Bank and 25 basis points at the Bank of England. They also reckon the Bank of Canada will ease monetary policy on Wednesday.
“Across jurisdictions there will be some differences in exact form of those measures and the exact timing, but the response will share a common goal which will be to achieve this bridging to support the economy through a potentially challenging period,” Bank of England Governor Mark Carney told U.K. lawmakers before the G-7 call. “We’re confident that collectively these measures both within jurisdiction and across jurisdictions will be both powerful and timely.”
The Bank for International Settlements is arranging a conversation in a week or so of 15-16 important central banks to discuss actions in response to virus, a person familiar with the matter said.
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“Central banks and finance ministries face different types and intensities of shock, with differing policy space to react, and -- in respect of exchange rates -- interests that are hard to align. Containing the spread of the virus has proved hard. Containing the economic fallout won’t be any easier.”
-- Tom Orlik
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The statement from the G-7, which includes the U.S., Japan, Germany, U.K., France, Italy and Canada, said “central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system.”
The Reserve Bank of Australia on Tuesday lowered its benchmark rate a quarter percentage point to a record low of 0.5%, citing the “significant effect” of the virus on an economy highly dependent on China for demand and trade. India’s central bank governor, Shaktikanta Das, said in an interview that he has also has room to cut rates if needed.
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