The U.S. Federal Reserve and its global counterparts moved aggressively with sweeping emergency rate cuts and offers of cheap dollars to help combat the coronavirus pandemic that has jolted markets and paralyzed large parts of the world economy.
The coordinated response from the Fed to the European Central Bank (ECB) and the Bank of Japan (BOJ) came amid a meltdown in financial markets as investor anxiety deepened over the difficulty of tackling a pathogen that has left thousands dead and put many countries on virtual lockdowns.
The Fed moved first on Sunday, cutting its key rate to near zero in a move reminiscent of the steps taken just over a decade ago in the wake of the financial crisis.
The U.S. decision triggered emergency policy easings by central banks in New Zealand, Japan and South Korea, with Australia also joining with a liquidity injection in a coordinated move aimed at stabilizing confidence as the pandemic threatened a global recession.
“The virus is having a profound effect on people across the United States and around the world,” Fed Chair Jerome Powell said in a news conference after cutting short-term rates to a target range of 0% to 0.25%, and announcing at least $700 billion in Treasuries and mortgage-backed securities purchases in coming weeks.
The Reserve Bank of New Zealand (RBNZ) slashed rates to a record low as markets in Asia opened for trading this week, while Australia’s central bank pumped extra liquidity into a strained financial system and said it would announce more policy steps on Thursday.
Later, the Bank of Japan too eased policy in an emergency meeting, ramping up purchases of exchange-traded funds (ETFs) and other risky assets to combat the widening economic fallout from the coronavirus epidemic.
Neighboring South Korea stepped in as well with a 50 basis point rate cut in a rare inter-meeting review on Monday.
“I don’t think we have reached a limit on how deep we can cut interest rates,” BOJ Governor Haruhiko Kuroda said.
“If necessary, we can deepen negative rates further,” he added.
“We can continue to pump ample liquidity into the market.”