Deutsche: ‘Policy failure is here’ amid market turmoil

Bloomberg

Global central banks have no room to fight the crisis caused by the coronavirus outbreak, according to Deutsche Bank AG.
“Policy failure is here,” George Saravelos, bank’s global head of currency research, wrote in a note. “We disagree with central bank pronouncements that there is room to fight the crisis.”
Market turmoil around the world deepened, as growing fears over the spread of the virus sent stocks tumbling and pushed yields on sovereign bonds to record lows. That follows a week in which the US Federal Reserve unveiled its first emergency interest-rate cut since the financial crisis, and its counterparts across the world stressed they have the tools to tackle the impact of the virus.
If “yields are approaching zero, where do they see it?” Saravelos wrote. “If the price of money can’t go down the only thing to do is print more. The market is rightly pricing policy failure as evidenced by the collapse in yields and inflation expectations everywhere.”
While interest-rate cuts — the traditional and most powerful monetary tool — are still on the agenda, most central banks don’t have much room to reduce further. Both the European Central Bank and the Bank of Japan are already below zero and the Bank of England is at 0.75%. Matching the Federal Reserve’s emergency cut of half a percentage this week would stretch them almost to their limits.
That’s led to policy makers also considering targeted measures that may be better suited to helping small and medium-sized companies, while some officials have talked up the prospects of a coordinated response with governments. Still, Saravelos added that it’s not a given that fiscal policy can solve the crisis either.
“The black swan is a liquidity crisis,” he added, “At times of stress the question always arises as to where is the vulnerability in the financial system. In our view, it is not a funding crisis like 2008 but a liquidity crisis we should be worried about.”