Central banks doing everything in their power to save the economy

Central banks doing everything in their power to save the economy

As the coronavirus continues to become rampant all over the world, the central banks are doing its best to provide liquidity to the markets.

The Bank of England (BOE) recently injected £100 billion [AU$181 billion] to bond-buying. As early as March, the central bank has already unveiled a plan to weather economic damages brought about by the pandemic.

Over in the U.S., the Federal Reserve recently announced a shortage of coins. However, Fed Chairman Jerome Powell told reporters that the problem is only temporary, per Business Insider.

He also added that the cause of the shortage was due to the mass business closures that prevented people from spending their coins as he tells CNBC:

“We’ve been aware of it, we’re working with the Mint to increase supply, we’re working with the reserve banks to get the supply to where it needs to be.”

Recently, the Fed announced that its interest rates will remain the same until the U.S. shows signs of recovery. In effect, the markets pulled back amid its announcement this month.

Europe pushes the quantitative easing program

The additional budget for bond purchases for the BOE has now totaled to £745 billion [AU$1.35 trillion] this week.

Similar to what the Federal Reserve did for its interest rates, the central bank has also decided to maintain its rates near 0% holding its main lending rate to 0.1%.

The BOE also projected the worst economic slump of the U.K. since 1706, expecting its gross domestic product (GDP) to fall by 14%.

Economists have foreseen the central bank to expand its bond-buying program. ING Developed Markets Economist James Smith suggested that the extra money injection would allow the BOE to resume its purchases until early September.

Recently, the U.K. has announced a cheap drug that could help them curb COVID-19. In addition, per Johns Hopkins University, the U.K. has recorded over 300,000 coronavirus cases.

Fed pursues corporate bond purchases, moves away from ETFs

In addition to the announcement from both the U.S. and European central banks to continue their bond purchase programs, it seems that the Fed is maintaining its stance.

This week, per CNBC, Powell also announced that it would be buying actual bonds and the Fed will “gradually move away from ETFs,” as he adds:

“It’s a better tool for supporting liquidity and market functioning.”

However, this week, the U.S. Treasury Yields showed weakness as fears grew due to the rise in coronavirus cases. CNBC noted that Texas recently reported an 11% increase in hospitalizations.

As the European and American markets try to end the week on a positive note, the central banks may still have firepower on their hands to maintain liquidity in the economy.

Featured image courtesy of Duncan Harris/Flickr

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