BIS国际清算银行-Central-banks-response-to-Covid-19-in-advanced-economies_9页_820kb

BIS Bulletin No 21: Central banks' response to Covid-19 in advanced economies

Core Content

This BIS Bulletin examines the swift and comprehensive response of central banks in advanced economies to the economic impact of the Covid-19 pandemic. It highlights the key policy measures taken by the central banks of the United States, the euro area, Japan, the United Kingdom, and Canada, emphasizing their role in stabilizing financial markets and ensuring credit flow to households and non-financial corporations (NFCs).

Main Points

1. Swift and Forceful Reaction

• Central banks reacted quickly to the pandemic, deploying a wide range of crisis tools within weeks.
• The primary objective was to maintain smooth financial system functioning and support credit flow.
• They acted as lenders of last resort, expanding liquidity provision and introducing new lending operations and asset purchase programs.

2. Monetary Policy Measures

• Interest Rates: All five central banks cut interest rates to near zero or negative levels, with the exception of Japan and the euro area where rates were already negative.
• Lending Operations: Central banks expanded short-term and long-term lending operations to address liquidity shortages and prevent market freezes.
  • The Federal Reserve, Bank of Canada, and Bank of England introduced new or expanded lending facilities.
  • The ECB increased the size and reduced the cost of its TLTRO III program and introduced PELTROs.
• Asset Purchases: Central banks significantly increased asset purchases, including government bonds, corporate bonds, and mortgage-backed securities.
  • The Fed and the Bank of Japan announced unlimited purchases of government bonds.
  • The Bank of England expanded its APF program to include corporate bonds.

3. Fiscal Policy Complementarities

• Fiscal authorities provided support to central banks through loan guarantees, fiscal backstops, and direct funding.
• Governments played a crucial role in enabling central banks to achieve their policy goals, particularly by reducing credit risk.
• Examples:
  • The US Treasury provided a $454 billion backstop to Fed programs.
  • The UK Treasury guaranteed 100% of commercial paper purchases under the CCFF.

4. Impact on Financial Markets

• The pandemic caused significant disruptions in financial markets, including corporate spreads, asset-backed securities, and equity markets.
• Central banks' interventions helped stabilize markets and reduce the costs of fiscal expansion.
• The US Treasury market saw a sharp sell-off, while the JGB market experienced pressure and sovereign spreads widened in the euro area.

Key Information

5. Balance Sheet Expansion

• Central banks' balance sheets are projected to grow significantly, with an average expansion of 15–23% of GDP before the end of 2020.
• This expansion is expected to persist in the near future due to the long-term nature of asset purchases.
• The Fed and Bank of Japan’s asset purchases were particularly large, with the Fed’s SOMA program and the Bank of Japan’s JGB and corporate bond purchases.

6. Credit to Households and NFCs

• Central banks focused on supporting credit flow to households and NFCs, which was more direct than during the GFC.
• The Fed introduced the Main Street Lending Program to reach SMEs.
• The Bank of Canada and Fed announced corporate bond purchase programs for the first time.

7. Foreign Exchange Operations

• FX swap lines were expanded to provide liquidity in foreign currencies.
• The Fed increased its dollar swap lines and introduced the FIMA Repo Facility to support the Treasury market.
• The overall volume of FX swap operations was smaller than during the GFC, but their scope was broader.

8. Comparison with the GFC

• The response to the pandemic was more comprehensive in terms of credit support and asset purchases than the GFC.
• The Fed's credit support was larger in absolute terms, but not as extensive as during the GFC.
• The ECB and Bank of Japan had a more significant footprint in terms of asset purchases and balance sheet expansion.

Conclusion

Central banks in advanced economies took decisive and coordinated actions to mitigate the economic fallout of the pandemic. Their measures included interest rate cuts, liquidity provision through lending operations, and large-scale asset purchases. These actions were supported by fiscal policy, creating a complementary and effective policy framework. The scale and duration of these interventions are expected to have lasting effects on central bank balance sheets, marking a significant shift from the more limited role seen during the GFC.