BOE’s Bailey Vows Quick Action When Needed on Virus Impact
BOE Pledges Further ‘Prompt Action’ on Virus Impact, Bailey Says
(Bloomberg) --
Andrew Bailey started his job as Bank of England governor with a pledge to take more action whenever needed to stem the economic fallout from the coronavirus pandemic.
Prolonged economic effects from the coronavirus are “something we want to minimize and stop,” Bailey said, speaking in a pooled television interview on Monday. “That’s why you saw prompt action last week, that’s why you’ll see prompt action again when we need to take it. The public can be assured of that.”
Further BOE action would build on an emergency move last week, when the central bank cut interest rates by 50 basis points and introduced other measures to help companies as part of a plan with the government. On Sunday night, it united with other major central banks to ensure dollars are available around the world via swap lines.
Central banks around the world are using whatever left in their limited monetary-policy arsenal to prop up the global economy against the risk of recession. The U.S. Federal Reserve slashed interest rates close to zero and launched a fresh quantitative easing program.
Battle Hardened
In Bailey, Britain is getting a governor who helped shaped the BOE’s response to the 2008 financial crisis when he was instrumental in saving Northern Rock after it was hit by a bank run. His tenure at the Financial Conduct Authority, however, saw him grapple with a number of scandals.
“You want your central bank governors to have lived through crises and come out the other side neither shaken nor stirred,” said Richard Barwell, an economist at BNP Paribas Asset Management.
“The fundamental problem is that there is precious little monetary ammunition left. A seasoned central banker who has been battle tested is not a bad place to start.”
Monday’s remarks had little impact on U.K. assets, with the pound staying little changed and the FTSE 100 Index remaining sharply lower on another tumultuous day for global assets. Bailey is also meeting with Prime Minister Boris Johnson and finance minister Rishi Sunak to discuss markets and the U.K.’s fiscal response to the crisis, according to the premier’s spokesman James Slack.
While Bailey only replaced Mark Carney as governor on Monday, he was present at the central bank’s emergency meeting last week. He indicated afterward that policy will be under “constant review and consideration,” and insisted that there is more space available for easing.
HSBC forecasts the new governor will hit the ground running at his first policy meeting on March 26, cutting the key rate to 0.1% -- officials have said they don’t want European Central Bank-style subzero policy -- and adding 60 billion pounds ($74 billion) of asset purchases.
That would leave precious little in the larder. On Wednesday, Bailey said the latest emergency measures had used up almost half of the remaining policy space, equivalent to 250 basis points of easing taking into account asset purchases and rate guidance.
Bailey said the BOE will monitor the impact of Sunday’s coordinated action with the U.S. Federal Reserve and central banks from Japan, the euro-area and Switzerland on financial markets.
“The action that the Federal Reserve took, in coordination with the other central banks, on the swap lines -- that’s important because you saw some pretty big dislocations in financial markets last week,” he said in his interview.
“We’re going to see how that works its way through the markets today and in coming days to see what the effect is, but I would emphasize that there’s strong coordination among central banks.”
--With assistance from Lucy Meakin and Zoe Schneeweiss.
To contact the reporters on this story: Jill Ward in London at jward98@bloomberg.net;David Goodman in London at dgoodman28@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Alaa Shahine, Andrew Atkinson
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