Central banks still have a lot of ammunition left to deal with economic shocks, despite their recent decisions largely falling flat as global stock markets continue to plunge, analysts have told CNBC.
The coronavirus outbreak is spreading across the world and weighing heavily on all major economies. Central banks have therefore accelerated monetary stimulus by cutting interest rates and purchasing even more governments bonds.
"This is a crisis which originated outside of financial markets and the real economy. Therefore, out of reach for central banks," Carsten Brzeski, chief economist at ING Germany, told CNBC via email Tuesday.
Central banks have been in the spotlight since the financial crash of 2008, which prompted the use of unconventional policy tools, such as negative interest rates. These measures have stayed with us over the last decade, sparking a debate over their effectiveness. This discussion has resurfaced over the last few days with stock markets plunging once again.
Nobel laureate Joseph Stiglitz told CNBC Tuesday that the new coronavirus outbreak is a "different kind of crisis" and an aggressive monetary policy is "is not enough" to solve the economic shock.
The Federal Reserve has announced two emergency rate cuts in the space of two weeks, effectively bringing its benchmark rate to zero. It also said Sunday it would buy $700 billion of Treasurys and mortgage-backed securities to shelter the economy from the effects of the virus. However, the Dow Jones Industrial Average saw its third-worst day ever following the Fed's announcement.
The Bank of Japan said Monday it would double stock purchases and loan to companies at a 0% interest rate. But Japanese equities dropped 2.5% on the day.
European stocks also plunged to new lows last week after the European Central Bank announced new measures, including further government bond purchases throughout 2020.
"It is an unprecedented crisis, with an unprecedented combination of supply side and demand side disruptions. Financial markets react to this uncertainty. No single central bank action can tackle the root cause," Brzeski said.
Many analysts believe the recent monetary policy decisions will lead to higher debt in already-indebted nations and will not make people consume more. As a result of the virus, citizens are not able to go to restaurants, cinemas and so on, even if they had money to spend.
"Buying sovereign bonds that are already at lowest yields in history and cutting rates only helps the already indebted, not the millions that will suffer (from) the collapse in revenues and working capital build. You don't solve a supply and epidemic shock with demand-side policies," Daniel Lacalle, chief economist at the wealth management firm Tressis Gestion, told CNBC Tuesday via email.
However, analysts are also of the opinion that central banks will keep doing more if the coronavirus hurts their economies further.
"Central banks are only just beginning to experiment with their new powers," Erik Jones, professor at Johns Hopkins University, told CNBC via email Tuesday.
"It's not yet over from central banks," Jordan Rochester, a currency analyst at Nomura, told CNBC Tuesday.
"If what they have done is not enough, then the conversation moves onto other forms of unconventional easing from helicopter money to new powers granted to the central banks by governments," he added
Helicopter money refers to a last resort type of monetary stimulus, which involves printing large sums of money and distributing it to the public in order to make them spend more and thus, boost the economy.
Erik Nielsen, chief economist at UniCredit, also said that ultimately central banks can opt to print more money.
"Central banks never lose their firepower. They can print money! The only constrains on central banks' firepower are those imposed by their interpretation of politically acceptable ones and their own assessments of what may work and not work — and all these constrains change over time," he said Tuesday.