Peter Hensman, estratega global de Newton, parte de BNY Mellon AM en relación con la reunión del BCE y del Banco de Inglaterra
ECB cuts rates 0.5% to 1.5%, as expected
The ECB continues to reluctantly deliver interest rate reductions as the extent of the downturn in the Eurozone extends beyond their earlier expectations. As with the announcement from the Bank of England earlier in the day, with the Eurozone repo rate approaching the zero percent lower bound, expectations are building that the ECB will be forced to adopt unconventional policy measures such as quantitative easing. With growing concerns about the situation in Central and Eastern Europe, and the vulnerability of a number of the countries within the Eurozone to further deterioration in the east, the ECB could be forced further away from its comfort zone in a relatively short space of time.
Bank of England cuts rates 0.5%, as expected. Introduces quantitative easing
The Bank of England likely ended the cycle of aggressive rate cuts that have been introduced since October, moving rates to another record low of ?% as had been expected by the consensus of forecasters on Bloomberg. The interest rate decision was of little interest to investors as the minutes of the last meeting had signalled the potential start of a new phase in monetary policy - the shift to quantitative easing. The aim is to increase the supply of money, using the funds created to acquire government and corporate bonds. The intention is that this will reduce the "risk free" return on government bonds at longer durations, reduce the additional cost faced by companies that need to raise capital and encourage more of those who are hoarding cash to seek a higher rate of return. In this initial phase of quantitative easing the Bank has announced it will purchase £75bn of assets, including medium and long dated gilts.
Paul Niven, Head of Asset Allocation at F&C, regarding today’s interest rate cuts by the Bank of England and the European Central Bank.
Another record low for UK rates: next stop “quantitative easing”
“As widely anticipated the Bank of England has cut interest rates to a record low in a half point move, to 0.5%. While there had been some debate over whether the Bank had already reached the end of the road for conventional policy (in terms of interest rates), and concern over the impact of a cut on bank margins, this move likely signals the end of rate cuts and a shift towards unconventional methods, such as quantitative easing. The roadmap from here, in terms of future policy moves, is uncertain as ‘printing money’ has a number of interpretations but, essentially, the Bank will now begin buying assets (government bonds as well as private assets) without recourse to debt funding. This will effectively raise the supply of money.
The Bank has already begun buying commercial paper assets, funded through sales of T Bills but the announcement today that up to £75bn of assets would be purchased through the quantitative easing process was at the high end of consensus expectations. The move by the Bank will be watched with interest over coming months (they stated that it may take up to 3 months to hit the £75bn target) and activity will likely focus initially on the purchase of government assets, in an effort to bring the rate of borrowing down further (the 10yr gilt yield has already dropped by over 25bp on the announcement). It remains to be seen how effective the approach to quantitative easing is, however, as credit markets remain frozen and direct action through asset purchases may be required in an effort to alleviate the situation there.
The Bank is keen to demonstrate that the floor may have been reached in terms of interest rates but there remain other tools at their disposal as they seek to ease financial and monetary conditions.”
ECB rates down to 1.5% - but further steps need to be taken to tackle the crisis
As expected, the ECB cut interest rates to the lowest on record, with a half point reduction to 1.5%. The slowdown in the Eurozone economy has been much more pronounced than the ECB expected and the move takes rates to the lowest level since the ECB began setting policy in 1999.
ECB President Trichet has consistently been more cautious than his counterparts in the Bank of England and the US Federal Reserve in the setting of interest rates and has recently been speaking of the dangers of a move towards quantitative easing; a policy now likely to be widely adopted by other major central banks. Despite this apparent reluctance to move towards less conventional policy it is likely that rates will hit a floor in the next quarter, probably at 1%, and that the ECB will increasingly have to assess how it can best ease monetary and financial conditions through alternative means. In this context, the ECB will be watching developments elsewhere carefully as the Bank of England begins their easing programme and will be assessing options available to them in order to effectively manage policy. While there are some technical and legal constraints in the manner by which the ECB may conduct unconventional policy this crisis has shown that, when policymakers have the will, that solutions can be found. The longer that the ECB delays in agreeing their next steps in tackling the crisis the greater the eventual cost to the Eurozone economy.