{"id":523,"date":"2020-03-14T21:00:22","date_gmt":"2020-03-14T21:00:22","guid":{"rendered":"https:\/\/www.finahukuk.com\/en\/?p=523"},"modified":"2020-03-17T07:48:13","modified_gmt":"2020-03-17T07:48:13","slug":"coronavirus-and-central-banks","status":"publish","type":"post","link":"https:\/\/www.finahukuk.com\/en\/2020\/03\/14\/coronavirus-and-central-banks\/","title":{"rendered":"Coronavirus and Central Banks"},"content":{"rendered":"\n

CORONAVIRUS and CENTRAL BANKS: A REALLY HARD EXAM<\/h1>\n\n\n\n

Coronavirus and Central banks are too closely related nowadays. Following the widespread risk of contagion from Covid 19 and consequent possible recession, on 3 March 2020 the Federal Open Market Committee<\/em><\/a> FED intervened in a peremptory way by cutting the official rate on the FED Funds by 50 basis points bringing it in the range 1-1.25% in order to counter the sell-off<\/em> on the stock market and the increase in credit spreads<\/em> on the bond asset<\/em>.<\/strong><\/p>\n\n\n\n

The Bank of England Monetary Policy Committee<\/em><\/a> also replicated the Fed’s orientation on 11 March by voting unanimously to cut the 50 basis points of the official rate to 0.25%, together with a new term funding<\/em> scheme financed with bank liquidity. and additional incentives for small and medium-sized enterprises; a scheme this, very similar to our European TLTRO III.<\/strong><\/p>\n\n\n\n

Moreover, it is not an irrelevant consideration that the previous decline<\/strong> in the yield curve of the German government Bund has already led us to foresee cuts<\/strong> in official rates on European deposits of as much as 20 basis points during 2020<\/strong>. In addition, while admitting that in doing so, the ECB<\/strong> would exhaust the<\/em> monetary boosting<\/em> tools available to it judging from the observation of futures<\/em> and forward<\/em> contracts on the overnight<\/em><\/strong> rate<\/strong>, many market analysts expected 10 basis points cut.<\/p>\n\n\n\n

Until February, it was now common belief among market operators that already in the closing stages of his mandate Mario Draghi had almost totally fired the cartridges left in the ECB<\/strong> rifle at the end of 2019, so the most likely command<\/strong> in Lagarde’s<\/strong> hands were:<\/p>\n\n\n\n

  1. an appeal to a more massive Quantitative Easing;<\/em><\/strong><\/li>
  2. and funding<\/strong> for small and medium-sized enterprises,<\/li><\/ol>\n\n\n\n

    measures considered more effective than the rate cut, for the real economy.<\/p>\n\n\n\n

    Some analysts hypothesized the return to a ‘ radical<\/strong> ‘ Quantitative Easing<\/em><\/strong> <\/strong>that is similar to that seen in the phase prior to the current Asset Purchase Program,<\/em> therefore of a substantial amount, up to 80 billion euros per month<\/strong>. Indeed, it is not a trivial thesis that Quantitative Easing<\/em> is the most incisive method in terms of positive effects<\/strong> :<\/p>\n\n\n\n