B.of.England cut by 50bp, being one of the European CBs with “margin to cut”.Note, however, that it still has the policy rate above zero. A specific liquidity facility for SMEs’ credit by banks was announced. No QE but Macroprudential and Supervisory decisions were also taken /1
The rate cut has no immediate hefty effects. It will be most useful later, after the virus crisis abates. The liquidity measures were important. The release of the counter-cyclical buffer was obvious. (In the continent, one country is still debating whether to increase it!?) /2
I want to underline two institutional aspects. I have said several times that the UK has the best setup for monetary, micro and macro supervision policies, with 3 deciding committees within the B.of.England chaired by the Governor. Today’s decisions illustrate that /3
In the EA there is no clear macroprudential authority with deciding powers. The ESRB only issues recommendations. In relation to few macroprudential tools the ECB can decide to top-up (but not release) measures taken by countries. However, in the recent legislation revision …/4
..the ECB was not even designated as a macroprudential authority and the set of macroprudential tools was not enlarged. The second point, concerns the acknowledgment by the B.of.England of the collaboration with the Treasury, anticipating its decisions to the eve of the Budget /5
Independent decisions, but coordinated in its timing, are more effective. Nothing of the sort is expected for the EA. Even the obvious significant activation of fiscal policy remains in doubt and that would be now the more important policy for economic expansion /6
Monetary policy is everywhere already quite expansionary but has to step up now despite recognised limitations to impact real aggregate demand in the present circumstances. The main tasks are the provision of liquidity, general and targeted, and ensuring financial stability /7
In the present situation I have been tweeting about macro policies, especially on monetary policy in general, and I have not changed my views about it. I have also commented on the FED and B.of.England decisions. I will not comment tomorrow on the ECB decisions. 8/8
As the spin starts, it should be clear that what UK authorities decided today was possible if the country had continued to be a European Union member as before. /9
Meanwhile the US S&P500 (-3.4%) and the UK FTSE100 (-1.2%) are going down as in all the other European countries, despite the measures ( read @johnauthers ). The VIX already touched 60 today. /10
