Gauging the shape of the recovery will dominate the Federal Reserves meeting, from which markets will meanwhile be looking for more forward guidance - Photo: Special

JAKARTA (TheInsiderStories) – Surprisingly, United States (US) Federal Open Market Committee (FOMC) cut the Federal Fund Reserves rate by 100 basis points to a target range of 0 to 0.25 percent. The Fed was originally scheduled to announce a policy decision on Wednesday.

The policymakers also said it would expand its balance sheet by at least US$700 billion in the coming weeks and backstopping foreign authorities with the offer of cheap dollar financing.

“The economic outlook is evolving on a daily basis and it is depending on the spread of the virus. That is not something that is knowable,” the Fed’ chairman, Jerome Powell told reporters on Sunday (03/15).

He also said at the end of an emergency FOMC meeting held in place of the regular meeting this week. The chair conceded, the Bank moves may make it easier for some companies to stay in operation and keep paying workers by expanding access to loans.

He also believed the Sunday’ move could lower the mortgage rates. Recently, average 30-year mortgage lending rates for homebuyers have fallen from 4.46 percent in January of 2019 to 3.29 percent as of March 5.

Powell conveyed, the Fed‘ asset purchases are intended to keep lending markets from freezing up so that banks can continue to issue loans to consumers and businesses. The substantial interest rate cut should also lower borrowing costs, bringing down the rates for many types of loans.

Given the depth and uncertainty of the risks, he said the Fed and other central banks were acting to ensure that financial markets keep functioning around the world, and trying to limit the chance that companies, households or financial institutions are dragged down by any slump in business.

To that end the Fed included dramatic moves to keep credit flowing to businesses and families, encouraging banks to tap trillions of dollars in equity and liquid assets built up as capital buffers since the financial crisis to support people whose lives may be upended by the virus.

“We really are going to use our tools to do what we need to do here,” said Powell, adding that the Fed has gone in “strong” and could increase bond-buying and use other tools to support market functioning and the flow of credit, what he called the Fed’s “most important” function.

The Fed and other global central banks moved aggressively on Sunday to buttress a world economy unraveling rapidly amid the pandemic. The coordinated global actions were reminiscent of the sweeping steps taken just over a decade ago to fight a meltdown of the global financial system, but this time the target was an entirely unfamiliar foe – a fast-spreading health crisis with no certain end in sight that is forcing entire societies to effectively shut down.

The Fed and other major central banks also cut pricing on their swap lines to make it easier to provide Dollars to financial institutions around the world facing stress in credit markets.

On Sunday, the Reserve Bank of New Zealand also decided slashed its interest rates by 75 basis points to a record low 0.25 percent, as it prepared for a “significant” hit to the economy from the COVID-19. The monetary policy committee also agreed unanimously to keep the interest rate at this level for at least 12 months.

The governor, Adrian Orr, told a media conference the bank was not contemplating negative interest rates at this point. He rated, the most effective tool at this time would be large scale asset purchases. Earlier, the Reserve Bank of Australia added A$5.9 billion ($3.61 billion) to the banking system through market repo operations.

The Fed, the Bank of Canada, European Central Bank, the Bank of England, the Bank of Japan (BoJ) and Swiss National Bank also agreed to offer three-month credit in US Dollars on a regular basis and at a rate cheaper than usual.

In Asia, monetary policy decisions will come from Japan, Indonesia, Philippines and Taiwan, with expectations of policy easing from most of them. The move was designed to bring down the price banks and companies pay to access American dollars, which has surged in recent weeks as a coronavirus pandemic spooked investors.

BoJ and Bank Indonesia (BI) will holds a two-day meeting ending Thursday. The pressure has been on central banks to do something to restore calm to financial markets.

Bank of Japan will strive to maintain smooth market functioning even though no specific country, region or financial institutions are facing difficulty procuring funds now. While, BI its expecting do more cuts to helps the domestic economy. In addition, China will release several important economic indicators that should reveal the scale of damage caused by coronavirus.

On Monday, the US Dollar fell against a broad range of currencies after the Fed made another surprise interest rate cut and major central banks took steps to relieve a shortage of dollars in financial markets.

The New Zealand Dollar also fell 0.2 percent to $0.6045, the Australian dollar fell 0.38 percent to $0.6164, but the Renmimbi edged up slightly to $7.0131 against the Greenback, as traders awaited key Chinese economic data. The global stock markets also contracted after the Fed announcement.

-Reuters contributed to this story

by Linda Silaen, Email: