By David Milliken and Elizabeth Howcroft
LONDON (Reuters) – Bank of England Governor Mark Carney said policymakers around the world are working on a “powerful and timely” response to the economic hit from coronavirus which has raised fears of a new global recession.
Central bankers and finance ministers from the Group of Seven rich nations were due to hold a conference call on Tuesday and Carney said they would act with the common goal of providing bridging support for the economy.
“The lines of communication globally between central banks are wide open,” Carney told lawmakers on Tuesday. “It is reasonable to expect a response that reflects a combination of fiscal measures and central bank initiatives.”
“We are confident that collectively these measures both within jurisdiction and across jurisdictions will be both powerful and timely,” he said.
The spread of coronavirus from China around the world has sent global finance chiefs scrambling to come up with ways to offset the hit to their economies, recalling the darkest days of the 2007-08 global financial crisis.
Carney said the threat from coronavirus, while potentially hurting economic growth for one or two calendar quarters, was not on the same scale.
“The 2007-2008 crisis caused some lasting scarring effects on the economy. The prospect with this situation is that we will have disruption, not destruction,” he said.
Earlier on Tuesday, two G7 officials said the policymakers from the group would stop short of directly calling for new government spending or coordinated central bank interest rate cuts.
BANG FOR YOUR BUCK
Carney, who is due to be succeeded as governor by Andrew Bailey in the middle of this month, said the shock to Britain’s economy from coronavirus could be “large but temporary”.
The British central bank’s three top policy-making committees held a rare joint meeting on Monday to plan out what action might be needed.
“The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large but will ultimately be temporary,” he said in a statement to lawmakers before addressing their committee in parliament.
Carney declined to comment when asked if the BoE’s Monetary Policy Committee might cut interest rates before March 26 when it is due to announce the outcome of its next meeting.
“The committee will make a decision at the appropriate time but not before,” he said.
Deputy Governor Dave Ramsden said measures to boost liquidity — which would aim to stop the financial system drying up — were among measures the BoE might take.
“Individual policies work, whether they’re conventional or unconventional, across a range of countries,” Ramsden said. “But when you put them together in packages with the correct communications you can get more bang for your buck.”
Carney said he was holding discussions with British finance minister Rishi Sunak — who is expected to announce higher public spending in a budget statement next week — and he was in regular contact with Britain’s FCA financial regulator, the BoE’s international peers and the International Monetary Fund.
Carney said the BoE’s monetary and financial policy committees and bank supervisory committee met jointly on Monday “to review a range of macroeconomic and financial system scenarios and their implications, and they will continue to meet as needed and will act as appropriate.”
He said “all necessary contingency plans” were in place at the BoE.
(Additional reporting by Paul Sandle, Estelle Shirbon and Alistair Smout; Writing by William Schomberg; Editing by Catherine Evans)