The World of International Organizations

G-7 pledges to fight new coronavirus risks

A statue of Swiss-American Albert Gallatin, the fourth U.S. Treasury Secretary, outside the U.S. Treasury in Washington (AN/John Heilprin)

WASHINGTON (Arête News) — Finance chiefs from the Group of Seven rich democracies vowed to take action to safeguard their economies from the spreading coronavirus outbreak but did not offer specifics on Tuesday about what they might be prepared to do.

In a half-hour telephone call led by U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell, G-7 finance ministers and central bank governors agreed to use whatever policy tools they have at their disposal to prevent more economic disruption to financial markets and supply chains.

“We, G7 finance ministers and central bank governors, are closely monitoring the spread of the coronavirus disease 2019 and its impact on markets and economic conditions,” the G-7 leaders said in a joint statement.

“Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks,” they said. “Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase.”

Powell’s Federal Reserve made an emergency interest rate cut on Tuesday, the biggest such move since the 2008 global financial crisis. It reduced the benchmark U.S. interest rate by half a percentage point, aiming to protect the U.S. economy and financial markets as the coronavirus quickly spreads globally.

“We saw a risk to the outlook of the economy and we chose to act,” Powell said after Fed leaders voted unanimously to slash the U.S. interest rate to just below 1.25 percent, down from about 1.75 percent.

Markets rose on the news, but U.S. President Donald Trump, who had called for a “big” rate cut, complained the action did not go far enough. Meantime, G7 leaders said their central banks will “fulfill their mandates” to support price stability, economic growth and resilience of the financial system.

International organizations ‘stand ready’

G-7 leaders from Britain, Canada, France, Germany, Italy, Japan and the United States have been under pressure to protect their economies from impacts of the virus. Along with the Fed’s move, the European Central Bank, or ECB, and the Bank of England and Bank of Canada were expected to make rate cuts.

“We welcome that the International Monetary Fund, the World Bank, and other international financial institutions stand ready to help member countries address the human tragedy and economic challenge posed by COVID-19 through the use of their available instruments to the fullest extent possible,” G-7 leaders said in their statement. “G7 finance ministers and central bank governors stand ready to cooperate further on timely and effective measures.”

Bank of England Governor Mark Carney told British lawmakers before the G-7 call that “across jurisdictions there will be some differences in exact form of those measures and the exact timing, but the response will share a common goal which will be to achieve this bridging to support the economy through a potentially challenging period.”

Leading figures at the Bank for International Settlements, a Swiss-based institutional bank for central banks, have been monitoring the impact of the global coronavirus outbreak and discussing potential actions. A day before the G-7 call, Luis de Guindos, ECB’s vice president, said the outbreak could disrupt growth around the world but his institution stands ready to adjust its financial instruments as needed.

“We remain vigilant and will closely monitor all incoming data. Our forward guidance steers the orientation of our monetary policy,” he said in his speech at London. “In any case, the Governing Council stands ready to adjust all its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner.”

The outlook for global economic activity had been showing some signs of improvement, said de Guindos, but the new virus outbreak added “a new layer of uncertainty” to global and euro area growth prospects.

“The outbreak has the potential to affect the euro area economy through both demand- and supply-side channels,” he said. “If the virus spreads more widely, domestic firms could be more directly affected due, for example, to supply chain delays.”

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