World's top central banks offer three-month dollar credit to calm…
Bank of England teams up with central banks in Canada, Japan, Europe, the US and Switzerland in extraordinary co-ordinated global response to coronavirus crisis
- Banks agreed to offer three-month credit in US dollars cheaper than usual rate
- Move follows a surprise rate cut by the Federal Reserve amid Covid-19 crisis
- Fed’s move was designed to bring down price banks pay to access US dollars
- Coronavirus symptoms: what are they and should you see a doctor?
The central banks of the United States, the euro zone, Canada, Britain, Japan and Switzerland agreed on Sunday to offer three-month credit in U.S. dollars on a regular basis and at a rate cheaper than usual.
The move, accompanying a second surprise rate cut by the Federal Reserve in as many weeks, was designed to bring down the price banks and companies pay to access U.S. dollars, which has surged in recent weeks as a coronavirus pandemic spooked investors.
Under the joint plan, the six central banks agreed to begin offering US dollars weekly with an 84-day maturity at 25 basis points over the overnight index swap (OIS), in addition to their existing operations with one-week duration.
Pedestrians walk past the Bank of England in the City of London on February 17
‘The new pricing and maturity offerings will remain in place as long as appropriate to support the smooth functioning of US dollar funding markets,’ the ECB said in a press release.
‘The swap lines are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses, both domestically and abroad.’
Despite the move, Asian markets still suffered a turbulent night as the crisis continues to unfold.
E-mini futures for the S&P 500 index fell 4.77 per cent to their daily trading limit outside the United States. EUROSTOXXX 50 futures fell 3.4 per cent and FTSE futures 2.7 per cent.
MSCI’s index of Asia-Pacific shares outside Japan slid 3.1 per cent to lows not seen since early 2017 while Tokyo stocks were over two per cent lower.
By aggressively slashing its benchmark short-term rate to near zero and pumping hundreds of billions of dollars into the financial system, the Fed’s moves Sunday recalled the emergency action it took at the height of the financial crisis.
The Bank of Japan just said it will hold an emergency meeting Monday, instead of the March 18-19 scheduled one.
The Bank of England issued a statement saying that the ‘new operations will help ease strains in global funding markets, thereby supporting the supply of credit to households and businesses’.
It added that major banks are well prepared to withstand the challenging but temporary shock.
‘This action complements other steps being taken by central banks and other national authorities, including the comprehensive and timely package of measures launched by the Bank of England last Wednesday.
‘These measures, reinforced by targeted fiscal actions such as in the UK budget, will help economies to bridge the disruption from an economic shock that could prove sharp and large, but should be temporary.
‘Major UK banks are well able to withstand severe market disruption. They hold £1 trillion of high-quality liquid assets.’
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