(Bloomberg) --
The Bank of England can do more to minimize the economic impact of the coronavirus in concert with the Treasury, Governor Andrew Bailey said Wednesday.
Britain is already facing disruption from the pandemic, but the central bank is seeking to avoid creating persistent effects that would damage the capacity of the economy, he said on a conference call with reporters. Investors have so far been unimpressed with the U.K. response, sending the pound to the weakest since 1985.
While the central bank wants to avoid having to cut interest rates below zero to avoid hurting the banking system, he indicated that the BOE would continue to review that stance as events unfold.
“We obviously have a broad range of measures, and without question we’ll have to come back to this, because this thing will evolve,” Bailey said.
The U.K. central bank’s attempt to ease the fallout from the pandemic have already included an emergency interest rate cut, measures to ease credit availably for banks, and strengthened dollar swap lines. Yesterday, the Treasury unveiled a new lending facility for affected businesses.
“We didn’t put a limit on it, and the reason for that is that we don’t know,” he said.
The creation of that facility, which he said they hope to have operating by next week, may have helped create more policy space. The BOE said last week that it had used up around half of the 250 basis points of room that was available before the crisis, something Bailey said the Monetary Policy Committee will consider when they meet for the March 26 decision.
The measures are “not a monetary policy operation in the sense of a true QE operation, but it does really increase the amount of reserves in the system,” he said. “So that is policy space in that sense.”
“We will meet the needs of the economy and the needs of the people of this country,” Bailey said in an interview with Sky News. “Everything is on the table that is reasonable, within the policy tool set.”
Nevertheless, Bailey reiterated that the BOE does not want to follow its European peers into introducing negative interest rates.
The BOE has previously said its lower bound for interest rates is 0.1%. Bailey said there are concerns over what sub-zero rates might do to the banking system and its ability to lend. That would effectively undermine what the BOE is trying to achieve with looser policy.
“We are not in the business of taking measures that would disrupt the operation of the system, the system to support the economy,’’ he said. “Everything is under review regularly, but we would have to get over that point before I would entertain it.”
Asked about free cash handouts to citizens, known as helicopter money, Bailey said he would consider such measures to be fiscal policy and that the government would lead on those.
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