The Bank of England announced that it is ready to go big and fast in the case that the second wave of COVID-19 causes more economic havoc, Governor Andrew Bailey said. The Sterling Pound edged above $1.33 for the first time this year to reach its highest level since early 2018. Bailey said that the central bank will act decisively to pump more money into the economy if needed.
Bailey took over as governor when the health crisis struck. He insisted that the bank still has adequate firepower to support the economy through further troubles that include deploying negative interest rates. That would effectively mean that firms and individuals would pay banks to hold on to their money. However, they would be paid to borrow encouraging them to spend as opposed to saving.
Bailey also added that the bank was ready to acquire more corporate debt if required, further stimulating the economy by supporting firms that required to borrow money. He added:
‘We are not out of firepower by any means, and to be honest, it looks from today’s vantage point that we were too cautious about our remaining firepower pre-COVID.’
An analyst at CMC markets, David Madden, said:
‘The extra stimulus will be called upon when the furlough scheme comes to an end in late October.’
Strategies To Improve Economy
The Bank of England (BoE) has already committed to offering an unprecedented stimulus package; in the wake of a record slump in economic activity during the lockdown. It went ahead to cut interest rates to a historic low of 0.1% and announced it would buy £300billion of Government bonds this year.
While speaking at the Jackson Hole symposium of central bankers that is normally held in Wyoming; but staged virtually this time due to the health crisis, Bailey said that he wanted:
‘to ensure there is sufficient headroom’ for a big bond-buying program’ ‘when needed in the future – to ‘go big’ and ‘go fast’ decisively.’
He conceded this strategy could become a challenge over the long term due to the rapid bond-buying which the Bank has committed so far this year and the need to sell off the assets again in the end. But for now, the governor said that there was a large stock of Government bonds for the central bank to buy and it could widen the types of financial assets it buys.