Budget Day emergency BoE rate cut suggests monetary and fiscal policy coordination
Joshua Roberts, Associate Director at Chatham Financial, says the timing of the Bank of England's emergency rate cut on Budget Day suggests a level of monetary and fiscal policy coordination…
The emergency rate cut is just one of a range of measures to support the UK economy through the Covid-19 outbreak. In many ways more significant is the decision to cut the countercyclical capital buffer rate to 0 per cent - offering up to GBP190 billion of funding to banks at zero cost on the condition that this is lent out to businesses. Meanwhile, high street banks are offering their own support measures to retail customers. NatWest and RBS have confirmed that individuals in financial difficulty due to the outbreak could qualify for breaks from mortgage payments and higher credit card limits.
Coming as it does on Budget Day, the surprise announcement suggests a welcome level of coordination between monetary and fiscal policy.
The spotlight is now squarely focused on the ECB’s monetary policy meeting tomorrow. But with the eurozone deposit rate already at a historic low of -0.5 per cent, it is difficult to see how much more support they can offer.