Monday, March 2, 2020

UPDATE-BOJ, Fed, ECB pledge 'appropriate' action in response to virus

     (Following item is updated with ECB vice president de Guindos, Bank of England, Basel banking supervisors and Indonesia)
    The central banks of Japan, the United States and the euro area are keeping a close eye on the impact of the coronavirus on economic activity and said they would take "appropriate" measures in response to the virus, which Paris-based OECD said presents the global economy with its greatest danger since the financial crises.
     In its interim economic outlook, the Organisation for Economic Co-operation and Development (OECD) on March 2 slashed its forecast for world economic growth to 2.4 percent from 2019's 2.9 percent and November's forecast of 2.9 percent, warning growth could even be negative in the first quarter of 2020.
     "Growth prospects remain highly uncertain," OECD said, calling on governments to "act swiftly and forcefully to overcome the coronavirus and its economic impact."
     Both the Bank of Japan (BOJ) and the U.S. Federal Reserve have taken the unusual step of issuing written statements in response to the plunge in global stock markets since Feb. 20 due to fear over how the coronavirus, or COVID-19, will affect global supply chains, travel and commodity markets.
     Luis de Guindos, vice president of the European Central Bank (ECB), said in a speech in London on March 2 the coronavirus had added a new layer of uncertainty to global and euro area growth prospects and the ECB was "vigilant and will closely monitor all incoming data."
     "In any case, the Governing Council stands ready to adjust all its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner," de Guindos added.
     Later Reuters reported de Guindos told journalists that global central banks have held talks about the impact of the coronavirus outbreak, with such discussions always taking place during times of volatility.
     Last week, on Feb. 26 and Feb. 27 global banking supervisors met in Basel, Switzerland, to review current risks to the banking system, including the implications of the virus outbreak on financial stability.
     A statement from the Basel Committee on Banking Supervision said supervisors had exchanged information on business continuity measures that banks and authorities had in place and encouraged banks and supervisors to "remain vigilant in light of the evolving situation and notes the importance of effective cross border information sharing and cooperation when dealing with such shocks."
     The BOJ and Fed also said they will take "appropriate" measures, with the BOJ saying it will provide ample liquidity and ensure stability in financial markets through market operations and asset purchases, while the Fed said it would use its tools to support the economy.
     Shortly thereafter the BOJ offered 500 billion yen in 2-week funds via market operations.
     A spokesman for the Bank of England (BOE) also said it was working with the UK Treasury and international partners to assess the potential impact of the virus on the global and UK economy to help protect the country's banking system and its economy.
     Indonesia's central bank, which already lowered its benchmark rate by 25 basis points on Feb. 20,  also took to the offensive in light of financial market uncertainty, which has resulted in investors withdrawing funds from developing countries in favor of safe-haven assets, such as U.S. government bonds and gold.
     Bank Indonesia said it would "intensify" its triple intervention policy to ensure the rupiah moves in line with fundamentals, cut the foreign exchange reserve requirement by 400 basis points to 4.0 percent to boost FX liquidity by around US$3.2 billion, and cut the reserve requirement on rupiah deposits by 50 basis points for those banks that are financing export-import activity.

     The Bank of Japan issued the following statement from its governor on March 2, 2020:

    "Global financial and capital markets have been unstable recently with growing uncertainties about the outlook for economic activity due to the spread of the novel coronavirus.
     The Bank of Japan will closely monitor future developments, and will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases."

     The Board of Governors of the Federal Reserve System released the following statement by Chair Jerome Powell on Feb. 28, 2020:

  "The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy."


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