Major Central Banks Led By Fed Unleash Stimulus On Covid-19 Shock




Leading central banks, led by the US Federal Reserve, decided on Sunday, to provide monetary stimulus to the world economy by boosting liquidity amid a global financial market crash as the coronavirus, or Covid-19, spreads hampering human activity and raising fears of a severe global recession.


The US Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank announced a coordinated action to enhance the provision of global US dollar liquidity.


These central banks agreed to lower the pricing on the standing U.S. dollar liquidity swap arrangements by 25 basis points, so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 25 basis points.


The US Federal Reserve reduced the interest rate to near zero on Sunday as the coronavirus outbreak harmed communities and disrupted economic activity.


Further, the Fed said it will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion.


The New Zealand central bank on Monday cut its interest rate by 75 basis points to 0.25 percent in an unscheduled move. The rate will remain at this level for at least the next 12 months, the bank said.


The RBNZ said the negative economic implications of the Covid-19 virus continue to rise warranting further monetary stimulus.


Elsewhere, the Reserve Bank of Australia said it is ready to buy government bonds and is set to unveil more measures on Thursday.


Governor Philip Lowe said the bank stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market.


In order to provide liquidity to the financial markets, Lowe said the central bank will also be conducting one-month and three-month repo operations in its daily market operations until further notice.


In addition, the RBA will conduct longer term repo operations of six-months maturity or longer at least weekly, as long as market conditions warrant.


Meanwhile, the Council of Financial Regulators said Australia's financial system is resilient and it is well placed to deal with the effects of Covid-19. Substantial financial buffers are available to be drawn down if required to support the economy.


The central bank reportedly added $5.9 billion into the banking system to ensure enough credit to businesses and households.


The Bank of Japan enhanced its massive monetary policy easing on Monday. The bank has decided to loosen the policy through conducting various operations including purchases of Japanese government bonds and the US dollar funds-supplying operations.


The bank also introduced a new operation to facilitate corporate financing and decided to actively purchase exchange-trade funds and Japan real estate investment trusts.

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