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Law360, London (March 13, 2020, 1:51 PM GMT ) Two Scandinavian central banks on Friday cut interest rates and lowered capital buffers to steady financial markets and encourage bank lending. steps aimed at limiting the economic impact of the coronavirus outbreak.
Norway and Sweden, following similar action by Denmark a day earlier, fell in step with a decision by the European Central Bank that relaxed various capital requirements for the bloc's banks on Thursday to offset the economic impact of the virus scare.
Norway's Norges Bank said that it will cut its key policy rate to 1% from 1.5% in order to "dampen the downturn" from the epidemic and "mitigate the risk of more persistent effects on output and employment."
The central bank also reduced the counter-cyclical capital buffer rate for banks from 2.5% to 1% with immediate effect, following advice from the central bank. Reducing the buffer will release into the economy some of the capital that banks are required to hold for use during market stress.
"Tighter lending standards could amplify an economic downturn," Norges Bank said in a statement on Friday. "A reduction in the counter-cyclical capital buffer can counteract a tightening of banks' lending standards."
Sweden's Riksbank said it will lend up to 500 billion Swedish krona ($50.4 billion) to Swedish companies through banks to insure access to credit.
"The turbulence on the financial markets means that companies that are essentially robust may experience funding difficulties," Stefan Ingves, governor of the Stockholm-headquartered central bank, said in a statement on Friday. "It is then important that the banks continue to provide these companies with loans so that the credit supply is not threatened."
The Swedish authority said it is prepared to take further measures and supply liquidity if necessary.
Denmark's central bank on Thursday said it will keep its key deposit interest rate at -0.75% while also introducing extraordinary loans so that the banking sector has access to liquidity at favorable terms. Copenhagen also decided to remove its counter-cyclical capital buffer.
The Bank of England reduced the rate of the capital requirement for its own lenders from 1% to 0% on Wednesday to temporarily dissolve the buffer to release £190 million for banks to lend to businesses.
Britain's central bank lowered bank refinancing Wednesday to 0.25% from 0.75% to encourage spending as investors are steering clear of risky assets since the coronavirus outbreak.
--Editing by Tom Mudd.
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