Bank of England (BoE) cut its policy rate by 50 basis points to 0.25 percent, joining a host of other central banks to fight the damage to the global economy due to the coronavirus outbreak through liquidity infusion.

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At its special meeting ending on March 10, the Monetary Policy Committee (MPC) of the BoE voted unanimously to reduce Bank Rate by 50 basis points to 0.25 percent.

The MPC also voted unanimously for the Bank of England to introduce a new Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME), financed by the issuance of central bank reserves.

"In order to mitigate these pressures and maximize the effectiveness of the monetary policy, the TFSME will, over the next 12 months, offer four-year funding of at least 5 percent of participants’ stock of real economy lending at interest rates at, or very close to, BoE rate," the policy statement said.

Additional funding will be available for banks that increase lending, especially to small and medium-sized enterprises (SMEs), the BoE statement added.

"Experience from the Term Funding Scheme launched in 2016 suggests that the TFSME could provide in excess of £100 billion in term funding," BoE noted.

The MPC further decided to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion.

The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

Earlier on March 3, the US Federal Reserve had cut interest rates by 50 bps in an emergency move designed to shield the world's largest economy from the impact of the coronavirus. It was the Fed's first emergency rate cut since 2008 at the height of the financial crisis, underscoring how grave the central bank views the fast-evolving situation.

The reduction in Bank Rate will help to support business and consumer confidence at a difficult time, to bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance.

First Published:Mar 11, 2020 1:21 PM IST