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VOL. 44 | NO. 12 | Friday, March 20, 2020

Bank of England cuts main rate to 0.1% in response to virus

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LONDON (AP) — The Bank of England slashed its main interest rate to 0.1%, its lowest-ever level since its founding in 1694, and reactivated its bond-buying program in response to the economic shock of the coronavirus pandemic.

Following another unscheduled meeting Thursday, the bank's nine-member Monetary Policy Committee said the moves were designed "to meet the needs of U.K. businesses and households in dealing with the associated economic disruption."

The interest rate cut comes just about a week after the central bank had cut its rate from 0.75% to 0.25% at another emergency meeting.

Perhaps more important than the rate cut, the bank said it was relaunching its monetary stimulus program that it had first used during the global financial crisis a little more than a decade ago.

The Monetary Policy Committee, now under new Governor Andrew Bailey, unanimously decided to increase its purchase of mainly government bonds but also corporate bonds, by 200 billion pounds ($230 billion) to a total of 645 billion, and that the purchases will be financed by issuing central bank reserves.

The move effectively pumps more money into the economy to help it cope with the shock of the coronavirus outbreak, which has seen the government impose a series of increasingly stringent restrictions on economic activity.

"The spread of COVID-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary," the committee said in a statement. "The role of the Bank of England is to help to meet the needs of U.K. businesses and households in dealing with the associated economic disruption."

The decision to relaunch its bond-buying program comes less than a day after the European Central Bank reactivated its one in the hope of keeping a lid on the borrowing rates of the 19 European Union countries that use the euro, particularly of highly indebted Italy and Greece.

The Bank of England also expanded a new funding scheme for small and medium-sized firms.

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