It’s easy to shrug off Mark Carney’s final act as Governor of the Bank of England.
After all, how is an interest rate cut going to help the owner of a restaurant whose tables have been empty for weeks? Or an airline with no passengers?
It would be fair criticism if the cut was the only policy action that had been taken. But it wasn’t.
Just as important as the rate cut are Carney’s other moves to get funds to cash-strapped firms, fast.
Banks will be allowed to cut the amount of safety capital they have to hold under the so-called countercyclical capital buffer rules. This will instantly unlock billions of pounds on their balance sheets to lend to businesses in need of credit to get over the coronavirus cashflow crisis.
Even better, more than £100 billion will be pushed out to small firms through a targeted surge of cash from the central bank’s Term Funding Scheme.
This is a clever bit of kit to deal with the problem that, at already superlow base rates, Lloyds, HSBC and the rest can’t cut the interest on savings accounts much more. That in turn means they can’t reduce borrowers’ rates either, so the Bank’s cut doesn’t get passed on. Under the TFS, Carney will give the banks new cash at the 0.25% base rate for SMEs.
Listen to today's episode of The Leader podcast:
With Rishi Sunak’s expansionary Budget and some Your-Country-Needs-You warnings against bonus and dividend greed, our policymakers are working well to get us through the shock.
It should save many decent businesses during what will be a painful, but short-lived squeeze.
Italians must wish the European Central Bank could be so effective.
