By David Milliken and Elizabeth Howcroft
LONDON (Reuters) – 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 grown 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.
The BoE’s announcement came alongside finance minister Rishi Sunak’s promise of 330 billion pounds in loan guarantees to business, and an extra 20 billion pounds of direct aid.
Bailey said on Wednesday that he could not say how large the take-up for its 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, with monthly issuance around 3 billion pounds, but Bailey stressed the BoE could effectively buy new commercial paper direct from firms.
The central bank is also open to widening finance schemes further, looking at asset-backed commercial paper and help for businesses whose credit quality is too low to benefit from Tuesday’s facility.
Bailey said he had taken note of sterling’s rapid fall against the dollar, and that policymakers would discuss it, though it did not have a single explanation.
“We will take it into account, consider 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.
Later in the day sterling fell below $1.17, down 3% on the day, to hit its lowest against the dollar in more than 30 years barring a flash crash in 2016, as investors sought the safety of the U.S. currency.
KEEP MARKETS OPEN
Bailey dismissed calls for financial markets to shut.
“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.”
Supporting jobs and people’s incomes would be critical, Bailey said.
Speaking to legislators, Sunak said the government was working “at pace” to help workers as well as companies, and Prime Minister Boris Johnson has promised to block evictions.
The government was looking at all possible measures, although given the scale of the challenge they would not be “perfectly targeted”, Sunak said.
Bailey, who only started as governor on Monday, said it was strange to be working in the BoE’s head office while it was almost deserted of staff, many of whom are working from home to reduce the risk of infection.
“I didn’t expect that on my first day as governor of the Bank of England I’d be sitting in the building on my own, pretty much,” he said. “But you know we have to do what we have to do.”
(Editing by William Schomberg and Stephen Addison)