INSUBCONTINENT EXCLUSIVE:
Global central banks stepped up their crisis-fighting this week in a campaign to keep markets functioning and economies growing as the
coronavirus looks increasingly likely to tip the world into its first recession since the financial crisis.
Among the tools deployed:
Interest-rate cuts, asset purchases, currency interventions and liquidity injections.
BloombergMarkets reacted just as aggressively
Trading volatility spiked to levels not seen since the financial crisis as the S-P 500 Index’s historic bull run came to an end and signs
of illiquidity emerged across debt markets
Even the $17 trillion US government-bond market wasn’t immune, with the gap between prices bid and sellers’ offers widening sharply
Meanwhile, the dollar staged its biggest jump in 12 years, climbing to a three-year high, as investors piled into haven assets.
With more
action likely next week, here’s a rundown of what happened this week:
The US Federal ReserveJust over a week since cutting interest rates
in an emergency move, the Fed offered markets trillions of dollars in liquidity to counter signs of dysfunction
It said it would provide temporary loans to banks in coming weeks to relieve strains as investors sold government bonds to raise cash.
The
Fed will also purchase a broader range of government securities than just short-term Treasury bills to make sure the liquidity reaches
elements of the market which need it most
Next up? Wall Street economists now say it’s very likely Fed policy makers will cut their benchmark interest rate by 100 basis points to
zero when they gather next Wednesday
They may even move before.
Treasuries whipsawed across the week, with yields on the 30-year bond seeing their widest weekly range in two
The promise of increased cash injections came as US stocks suffered their sharpest one-day plunge since 1987.
The Bank of JapanIt offered
the market up to 2.2 trillion yen ($20.7 billion) in cash injections in three different operations on Friday, while snapping up stock funds
for the sixth time this month
It also pledged to maintain liquidity and keep markets stable this month.
The yen weakened versus all of its major peers on Friday as
Japan’s currency is still up this year against all of its G-10 counterparts except the Swiss franc.
Officials convene next Wednesday and
Thursday with people familiar with the matter saying they are likely to show a more aggressive stance on buying assets such as
Whether the BOJ will raise its 6 trillion yen ($58 billion) ETF-purchasing target remains unclear and could depend on the severity of market
conditions at the time of the meeting, the people added.
European Central BankThe ECB tried a nuanced approach
It promised to buy more bonds, and enhanced a loan program with terms that effectively amount to an interest-rate cut for banks that use it
to pump money into the economy.
But it didn’t cut its deposit rate further below zero, which disappointed investors, and President
Christine Lagarde drew criticism for comments which sent Italian bonds into a tailspin and had to be clarified.
BloombergEuropean stocks
also buckled and the euro weakened before stimulus announced by Germany boosted risk appetite Friday
Yields on the German 30-year bond surged the most in a decade on the prospect of fiscal action.
Bank of EnglandThe Bank of England started
Wednesday early by unveiling stimulus including its first emergency rate cut since the financial crisis
It delivered a half-point reduction to take the key rate to 0.25 per cent, introduced a new program to provide easy and cheap credit, and
reduced a special capital buffer to give banks even more room to lend.
It acted on the same day the U.K
government announced its budget, giving a sense of coordination that investors wanted
Incoming Governor Andrew Bailey made clear it has space if it needs to do more.
The pound swung between gains and losses on the day, and
ended the week down 5.9 per cent against the dollar, the most on a closing basis since 2009.
People’s Bank of ChinaThe world’s
number-two economy cut the amount of cash that banks have to set aside as reserves
It offered discounts to commercial lenders’ reserve ratios of a half or 1 percentage point from their original level
Joint-stock banks will get an additional reduction of 1 percentage point, and together the cuts will release 550 billion yuan ($79 billion)
of liquidity, the PBOC said.
BloombergBank of CanadaIt surprised on Friday by cutting rates by half a percentage point as its economy is hit
by the virus and falling oil prices
It said it “stands ready” to act again and also announced a new facility to acquire money market instruments used by small- and
That was the second rate cut in two weeks, and on Thursday it had announced it planned to volley billions of dollars into markets
Eyes are now turning to Prime Minister Justin Trudeau’s government for a fiscal effort.
Reserve Bank of AustraliaHaving also cut interest
rates this month, on Friday it injected A$8.8 billion ($5.5 billion) in its open-market operations, the most in at least seven
years.
Reserve Bank of IndiaKeen to keep the rupee stable, it plans to add 250 billion rupees ($3.4 billion) through short-term repurchase
operations after announcing Thursday a $2 billion injection into the foreign-exchange market.
BrazilIts central bank used a wide array of
market interventions this week to support one of the worst performing currencies in the world
In one week, policy makers intervened using auctions of lines, swap, roll-overs and dollars in spot markets, accumulating sales of around
$17 billion through separate auctions
Next week will also come to effect a measure announced on Feb
20 that freed up to 135 billion reais ($28.2 billion) in reserve requirements and other prudential measures, allowing increased liquidity to
banks.
Sweden’s RiksbankIt lent up to 500 billion kroner ($51 billion) to banks to maintain the supply of credit to companies
The measure “should be regarded as a form of insurance that enables Swedish companies –- particularly small and medium-sized enterprises
–- to feel secure that the credit supply will not fail,” said Governor Stefan Ingves.
Norges BankIt also acted outside of its normal
calendar on Friday to cut its benchmark to 1 per cent from 1.5 per cent
It said it’s “monitoring developments closely and is prepared to make further rate cuts.”
The Bank of KoreaIt said it’s considering
a special meeting to tackle wild swings in the foreign-exchange market
The bank also said it would take steps to stem excessive foreign exchange movements.
Bank of IndonesiaIts central bank bought 6 trillion
rupiah ($405 million) of government bonds on Friday to prop up financial markets, adding to 8 trillion rupiah of bonds purchased
Thursday.
ParaguayIts central bank made a surprise quarter point cut, reducing borrowing costs to 3.75 per cent from 4 per cent at a meeting
that took place 10 days before the scheduled date.
Bank of MexicoBanco de Mexico expanded the maximum amount that could be issued under an
existing non-deliverable forward hedge program to $30 billion from $20 billion on Monday after a steep sell-off in the Mexican peso
In an effort to increase liquidity and stabilize peso volatility, Banxico acted again on Thursday, auctioning $2 billion in
hedges.
ColombiaColombia’s central bank said it will auction 30-day non-deliverable forwards, and won’t directly sell reserves
They say this is to provide liquidity at a time of volatility, rather than an attempt to influence the value of the peso.
