Central banks are among the main players in the ongoing economic crisis caused by the closure of economies to reduce the spread of coronavirus. Although they are not changing their monetary policy anymore, as they did so definitely at the beginning of the epidemic, they are still ready for possible further actions.
Today, interest rates were decided by the Bank of England. All members of the Monetary Policy Committee (MPC) voted in favor of keeping the key bank rate at a record low level of 0.1%. It was in line with market forecasts. A bond purchase programme of £645 billion was also left, although two members voted in favor of an increase of £100 billion, which is another signal that changes in the QE programme may occur, as a further stimulus is needed for the economy. The central bank expects UK GDP to fall by as much as 14% in 2020 due to the coronavirus pandemic. According to the Bank of England's assumptions, inflation will fall to 0.6% and unemployment will rise to 8%. However, the Bank of England has signaled its willingness to continue to act if it is necessary.
Such declarations are also made by representatives of the ECB. The European Central Bank remains ready to further adjust its monetary policy measures said Vice-President Luis de Guindos. We are more determined than ever to ensure favorable financial conditions in all sectors and countries to absorb this unprecedented shock he added. The measures taken by the ECB since March have provided key support to the euro area economy.
The Bank of Switzerland, whose foreign exchange reserves have increased most in eight years due to foreign exchange intervention, is active in the market. SNB deposits increased this year by almost 77 billion francs, suggesting a much larger purchase of foreign currency by the SNB, which spent 13.2 billion francs in 2019 and 2.3 billion francs in 2018. The figures show that the central bank most likely intervened, especially around 23 and 24 April, when we saw the EUR/CHF exchange rate rise. Large-scale interventions may remain SNB's main tool for limiting the appreciation of the franc.
Today, the decision of the Bank of Norway came as a big surprise to the market, which seems to affect NOK's exchange rate. The bank's management decided to reduce the key interest rate to zero from 0.25%. Such a move was expected by only 2 out of 21 economists surveyed by Bloomberg agency. Norges Bank expects GDP to fall by 5.2% in 2020 and grow by 3% in 2021. In a statement, NB added that interest rates should remain at the current level for some time. Immediately after the decision, the USD/NOK or EUR/NOK pairs recorded a steep rise.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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