NEW YORK • Global central banks remain under pressure to do more to support their economies through the coronavirus recession even after driving interest rates to record lows and pledging to spend trillions of dollars on asset purchases.
The US Federal Reserve, Bank of Japan (BOJ) and European Central Bank (ECB) will convene meetings of policymakers this week, as monetary authorities face pressure to do more to limit the recession and speed the recovery. Among the options: extending quantitative easing, helping ease credit to troubled businesses and committing to rock-bottom rates for longer.
"The extremity of the virus crisis is forcing central banks to push the limits of the possible," Bloomberg Economics' chief economist Tom Orlik said. "We expect the ECB to expand its fire fighting pandemic emergency purchase programme and the BOJ to roll out more support for corporates... the Fed won't add additional support, but will confirm it has space to do more."
The Fed's policy meeting is tomorrow and Wednesday. It has cut rates to virtually zero and rolled out a series of emergency and unorthodox lending facilities designed to backstop markets and keep credit flowing to businesses. The Fed's balance sheet has already reached US$6.57 trillion (S$9.36 trillion).
Economists in a Bloomberg survey have limited expectations for any substantial changes at this week's meeting. Large majorities, 90 per cent and 87 per cent, do not expect policymakers to offer any additional guidance on how long they intend to keep rates near zero.
But investors will be looking for any indications from chairman Jerome Powell on how deep the Fed fears the recession will go.
Central bankers are being urged to do more as they try to get their Main Street lending programme up and running.
The ECB sets its policy on Thursday, with a heavy weight on its shoulders as governments argue over joint fiscal action. After president Christine Lagarde told leaders last week that they might have done too little, too late, and warning that the euro area economy could shrink as much as 15 per cent this year, they still failed to agree on how to structure a recovery fund.
Most economists expect the ECB will keep monetary policy on hold this week. It only recently pledged to bump up its asset purchases by over €1 trillion (S$1.54 trillion) this year, and made it easier for banks to finance their loans to companies.
But one in four respondents to a Bloomberg poll said the ECB could still boost the size of its pandemic purchase programme from €750 billion as early as Thursday. Most see it happening by September.
Having agreed last week to accept junk bonds as collateral for bank loans, there is speculation it will add sub-investment grade assets to its purchase plan list.
After stepping up its buying of exchange-traded funds and corporate bonds, the BOJ meets today to discuss allowing unlimited government bond purchases, replacing its current 80 trillion yen (S$1.05 trillion) target, the Nikkei reported last Thursday.
Governor Haruhiko Kuroda and his fellow policymakers will likely take further steps to get credit to businesses hit by the pandemic, a Bloomberg survey shows.
Some 83 per cent of 40 analysts forecast the BOJ will introduce new tools to support bank lending for businesses at the meeting. Options include raising purchase targets for commercial paper and corporate bonds or widening a new lending operation so smaller firms can benefit via smaller banks.
BLOOMBERG
