Interest Rates and Monetary Policy: Key Economic Indicators

Major central banks around the world cut interest rates and expanded quantitative easing in response to the coronavirus pandemic.

UK (Bank of England)

On 23 September, the Bank of England’s Monetary Policy Committee (MPC) announced it had left interest rates unchanged at 0.1% and kept the total size of its bond-buying programme (known as quantitative easing, QE) unchanged at £895bn (to be completed by the end of 2021).

In March 2020 the Bank introduced measures in response to Covid-19. Interest rates were cut in two stages to 0.1% – the lowest they have ever been. On 11 March they were cut from 0.75% to 0.25% and then again to 0.1% on 19 March 2020, where they have since remained. The MPC has also expanded its quantitative easing (QE) programme by £450bn since the pandemic began, taking the total value of assets it can own to £895bn.

QE consists of the Bank creating new money electronically (as central bank reserves) and then using it to purchase financial assets, mostly government bonds.

The MPC has also introduced a number of other schemes during the pandemic, including to support banks’ lending capacity. For more, see section 4.2 of the Library briefing paper, Coronavirus: Economic impact.

United States (Federal Reserve)

Policy was left unchanged at the Fed policy meeting ending 22 September. Interest rates are at a range of 0-0.25% and every month the Fed is buying $80bn of government debt and $40bn of mortgage debt, as part of its QE programme.

Responding to the pandemic, the Fed had by 15 March 2020 cut interest rates to its current range of close to 0% from 1.5%‑1.75% prior to the pandemic. On 23 March 2020, the Fed announced a wide range of measures designed to support the economy. This included buying debt from the government, corporations and purchasing other securities (such as those backed by mortgages and other assets).

Eurozone (European Central Bank)

At its 9 September meeting, the ECB left its main interest rates unchanged at 0.0%, and −0.5% (for overnight deposits from banks), but slowed the pace of its bond purchases in its pandemic-relative quantitative easing programme “to a moderately lower pace”. This programme is planned to reach €1.85 trillion in purchases by March 2022 (plus €3.2 trillion to date in non-pandemic QE).

The ECB launched its pandemic response on 12 March 2020 and expanded it significantly on 18 March and 4 June. The ECB has also made cheap loans available to banks to encourage them to lend to businesses.