Europe Economy

Bank of England ready for more action as coronavirus threat grows: Bailey

Key Points
  • The Bank of England on Tuesday said it would buy a form of debt called commercial paper from investment-grade companies, even if they had not issued it previously. But he said he didn't know how large the take-up for the scheme would be.
  • The Bank of England cut rates on March 11 to a joint record low 0.25% and launched measures to encourage banks to keep lending to smaller firms.
Andrew Bailey, chief executive officer of Financial Conduct Authority, speaks during a Bloomberg Television interview in London, U.K., on Monday, Sept. 16, 2019.
Jason Alden / Bloomberg / Getty Images

Bank of England Governor Andrew Bailey said the British central bank is open to further emergency measures as the economic threat posed by the coronavirus has escalated since last week when the BoE slashed interest rates.

"The effect of this on big firms has become much starker in the last week," Bailey said on Wednesday.

On March 11, the BoE cut rates to a joint record low 0.25% and launched measures to encourage banks to keep lending to smaller firms.

As the crisis grew, with many sectors of Britain's economy hit by a near shutdown, the BoE said on Tuesday it would buy a form of debt called commercial paper from investment-grade companies, even if they had not issued it previously.

Bailey said on Wednesday that he could not say how large the take-up for the scheme would be. Details of the scheme published on Tuesday showed there was no formal cap, though it is subject to review by the BoE's Monetary Policy Committee.

The existing commercial paper market is small, but Bailey stressed the BoE could effectively buy new commercial paper direct from firms.

The central bank was also open to widening finance schemes further, looking at asset-backed commercial paper and the credit quality that non-financial firms need to access its facilities.

Bailey said he had taken note of sterling's fall below $1.19, and that policymakers would discuss it when they next meet, though he did not have a single explanation for it.

"We will take it into account, consider it carefully what the effects of it will be, but I don't have a view, and I don't have a view on the level of sterling either," he told reporters.

Britain's central bank is typically reluctant to comment on sterling, and does not target a specific level for the currency, which has fallen to its lowest level against the U.S. dollar since 2016 as the coronavirus impact has spread.

Keep markets open

Bailey dismissed calls for financial markets to shut due to the coronavirus crisis.

"As long as we are not seeing what I would call markets that are out of control then keeping markets open is important," he said. "So far the financial system is standing up well to this."

In a separate interview with the BBC, he told short-sellers of British assets to stop.

Bailey played down suggestions that the central bank might take interest rates below zero - effectively charging people to keep money in a bank account - or give cash directly to the public, sometimes called helicopter money.

"I think measures that are designed to provide that sort of intervention are really much more, I would say, in the fiscal space in terms of how they're targeted," he said, noting they were questions for British finance minister Rishi Sunak.

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