Interest Rates and Monetary Policy: Key Economic Indicators

Major central banks around the world have introduced emergency measures in response to the coronavirus pandemic.

UK (Bank of England)

On 6 May, 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). The MPC also raised its GDP growth forecast for 2021.

In March 2020 the Bank announced a series of emergency 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 2020 they were cut from 0.75% to 0.25% and then again to 0.1% on 19 March.

On 19 March, the MPC also expanded its quantitative easing (QE) programme by £200 billion, taking the total value of assets it can own to £645 billion. On 18 June, the MPC expanded QE by a further £100bn, taking the total to £745bn. On 5 November, the MPC expanded QE by another £150bn

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 also introduced a number of other schemes. This includes some designed to provide cheap loans to banks, so they have additional capacity to lend to businesses. 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 28 April, with interest rates left at 0-0.25% and asset purhcases (QE) maintained at $120bn per month ($80bn in government bonds and $40bn in mortgage-backed securities).

Responding to the economic impact of the pandemic, the Federal Reserve had by 15 March 2020 cut interest rates to a range of 0-0.25% from 1.5%-1.75% at the beginning of March. On 23 March, the Fed announced a wide range of measures designed to support the economy. This includes buying debt from the government, corporations and purchasing other securities (such as those backed by mortgages, student loans and other assets). The Fed pledged to buy government debt “in the amounts needed”, with no upper limit. A new loan facility to small- and medium-sized companies was also launched. 

Eurozone (European Central Bank)

At its 22 April meeting, the ECB left its main policies unchanged, with its main interest rates at 0.0% and −0.5% (for overnight deposits from banks). On 10 December 2020, it expanded its pandemic programme of bond purchases (also known as quantitative easing, QE) by €500bn in planned purchases taking the pandemic scheme total to €1.85 trillion by March 2022 (plus €3.1 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.