LONDON (Reuters) – Governments and central banks around the world have unleashed unprecedented fiscal and monetary stimulus and other support for economies floored by the coronavirus pandemic.
The G20 said on March 26 it would inject more than $5 trillion into the global economy to limit job and income losses and “do whatever it takes” to tackle the pandemic.
Following is a summary of the main policy steps:
UNITED STATES
MONETARY STIMULUS – The U.S. Federal Reserve cut interest rates in two emergency meetings on March 3 (50 basis points) and March 15 (100 bps), taking the federal funds rate to 0-0.25%, and pledged $700 billion in asset purchases, or quantitative easing (QE). It also cut the discount window rate by 150 basis points.
On March 23 it promised unlimited, open-ended QE, including purchases of corporate and municipal bonds.
LIQUIDITY OPERATIONS AND FUNDING – Trillions of dollars in repurchase agreements, flooding the markets with cash; swap lines with other major central banks to provide dollar funding; programme to support money market funds; easing of bank capital buffers; funding backstop for businesses to provide bridging loans of up to four years; funding to help credit flow in asset-backed securities markets; also plans to extend credit to small- and medium-sized businesses. The Fed on March 31 broadened the ability of dozens of foreign central banks to access U.S. dollars by allowing them to exchange holdings of U.S. Treasury securities for overnight dollar loans. The programme was expected to be running by April 6 and last for at least six months.
The Fed on April 9 rolled out a broad, $2.3 trillion effort to bolster local governments and small and mid-sized businesses, offering four-year loans to companies of up to 10,000 employees and directly buying the bonds of states and more populous counties and cities.
EXPLAINER on what the Fed has done
FISCAL STIMULUS (FEDERAL) – The U.S. House of Representatives passed a $2.2 trillion aid package – the largest in history – on March 27 including a $500 billion fund to help hard-hit industries and a comparable amount for direct payments of up to $3,000 to millions of U.S. families.
EURO ZONE
MONETARY STIMULUS – The European Central Bank on March 12 added 120 billion euros ($130 billion) to its existing asset-purchase programme of 20 billion euros a month. On March 19, it added another 750 billion euros in QE, taking the total to about 1.1 trillion euros this year, and added Greek government debt to the portfolio of bonds it would purchase. On March 26, it eliminated a cap on how many bonds it can buy from any single euro zone country.
LIQUIDITY OPERATIONS AND FUNDING – The ECB cut the interest rate on its Targeted Long-Term Refinancing Operations (TLTROs) – cheap loans to banks – by 25 basis points to -0.75% on March 12. It provided additional LTROs to bridge bank funding through to June and relaxed capital rules.
FISCAL/OTHER: Suspension of limits on EU government borrowing; considering allowing precautionary credit line worth 2% of national GDP from ESM bailout fund.
European Union finance ministers agreed on April 9 on half a trillion euros’ worth of support, bringing the EU’s total fiscal response to the epidemic to 3.2 trillion euros. One hundred billion euros will go to a scheme to subsidise wages so firms can cut working hours, not jobs. The European Investment Bank will step up lending to companies with 200 billion euros, and the euro zone’s European Stability Mechanism (ESM) bailout fund will make 240 billion euros of cheap credit available to governments.
GERMANY
FISCAL STIMULUS – Agreed package worth up to 750 billion euros on March 23; 100 billion euros for an economic stability fund that can take direct equity stakes in companies; 100 billion euros in credit to public-sector development bank KfW for loans to struggling businesses; stability fund will offer 400 billion euros in loan guarantees to secure corporate debt at risk of defaulting.
FRANCE
FISCAL STIMULUS – 45 billion euros of crisis measures on March 17 to help companies and workers; guaranteed up to 300 billion euros of corporate borrowing from commercial banks on March 16.
ITALY
FISCAL STIMULUS – Emergency decree worth 25 billion euros on March 16, suspending loan and mortgage repayments for companies and families and increasing funds to help firms pay workers temporarily laid off.
New emergency decree approved on April 6 that will offer more than 400 billion euros worth of liquidity and bank loans to companies.
SPAIN
FISCAL STIMULUS – A 200 billion euro package on March 17; half in state-backed credit guarantees for companies and the rest including loans and aid for vulnerable people. The government approved on March 31 a 700 million euro aid package, including a measure to suspend evictions of vulnerable households for six months after the state of emergency is lifted.
UNITED KINGDOM
MONETARY STIMULUS – The Bank of England cut interest rates in two emergency meetings on March 11 (50 bps) and March 19 (15 bps), taking the rate to a record low of 0.10%; announced 200 billion pounds ($248 billion) of bond purchases.
LIQUIDITY OPERATIONS AND FUNDING – The BoE introduced a new programme for cheap credit and reduced a capital buffer to help banks lend. A BoE corporate financing facility will buy commercial paper with a maturity of up to 12 months from businesses that had a pre-crisis investment-grade credit rating or similar. The Bank of England said on April 2 it will double the size of its corporate bond purchase programme to at least 20 billion pounds.
FISCAL STIMULUS – A 30 billion pound stimulus plan on March 11; 330 billion pounds in loan guarantees to businesses; offered to pay 80% of wage bills if staff put on leave, up to a maximum of 2,500 pounds a month. Businesses also allowed to temporarily hold onto 30 billion pounds in VAT.
CANADA
MONETARY STIMULUS – The Bank of Canada cut rates in three emergency meetings on March 4 (50bps), March 13 (50 bps) and March 27 (50 bps), taking the overnight interest rate to 0.25%. The Bank also said on March 27 it would buy Government of Canada securities in the secondary market. It will begin with purchases of C$5 billion per week, across the yield curve.
LIQUIDITY OPERATIONS AND FUNDING – eligible collateral for term repo operations expanded; C$50 billion insured mortgage purchase programme; C$10 billion credit support programme for businesses. Canadian Mortgage and Housing Corp on March 26 bolstered the insured mortgage purchase programme to C$150 billion from previously announced C$50 billion.
FISCAL STIMULUS – Ottawa will cover up to 75% of the wages of people working for small and medium-sized enterprises; C$55 billion in tax deferrals for businesses and families; C$27 billion aid package for workers and low-income households.
JAPAN
MONETARY POLICY – The Bank of Japan eased monetary policy by ramping up purchases of exchange-traded funds (ETFs) and other risky assets, including corporate bonds. It is also creating a new loan programme to extend one-year, zero-rate loans to financial institutions.
FISCAL STIMULUS – The government on March 10 announced 430.8 billion yen of extra spending, much of it aimed at supporting small and medium-sized businesses. It will also fund upgrades to medical facilities, and subsidise working parents forced to go on leave because of school closures.
The government approved on April 7 an unprecedented economic stimulus package equal to 20% of economic output. The package totals 108 trillion yen ($993 billion) and includes cash payouts worth more than 6 trillion yen to households and small and midsize firms.
CHINA
MONETARY STIMULUS – The People’s Bank of China (PBOC) on March 30 lowered the seven-day reverse repo rate to 2.20% from 2.40%, the largest cut in nearly five years.. The PBOC cut its one-year Loan Prime Rate by 10 basis points to 4.05% on Feb. 20, after various liquidity injections and other policy easing earlier in the year.
LIQUIDITY AND FUNDING – The PBOC cut the amount of cash that banks must hold as reserves for the second time this year on March 13, releasing 550 billion yuan.
China offered easier funding for small and medium-sized businesses, increasing yuan re-lending and re-discount quotas by 500 billion yuan ($71 billion) (Feb 25); China also increased policy banks’ loan quota by 350 billion yuan to make loans targeting these businesses.
The People’s Bank of China said on April 3 it will cut the reserve requirement ratio (RRR) for small banks by 100 basis points, releasing around 400 billion yuan. It will be implemented in two phases – the first 50 basis point cut will be effective April 15 and a second 50 bps cut will be effective May 15.
FISCAL STIMULUS – China is set to unleash trillions of yuan of fiscal stimulus. It aims to spur infrastructure investment, backed by as much as 2.8 trillion yuan of local government special bonds, according to sources on March 19. The national budget deficit ratio could rise to record levels, sources added.
The ruling Communist Party’s Politburo said on March 27 it would step up macroeconomic policy changes and pursue more proactive fiscal policy. It called for expanding the budget deficit, issuing more local and national bonds, guiding interest rates lower, delaying loan repayments, reducing supply-chain bottlenecks and boosting consumption.
Earlier in the year, Beijing introduced various small measures and fiscal expenditure such as tax breaks, reduced power charges and fee reductions.
INDIA
MONETARY STIMULUS – The Reserve Bank of India slashed its benchmark repo rate by 75 basis points to 4.40% on March 27.
FISCAL STIMULUS – The federal government announced on March 26 a 1.7 trillion rupee ($22 billion) stimulus plan providing direct cash transfers and food security measures.
SOUTH KOREA
MONETARY STIMULUS – The Bank of Korea cut interest rates by 50 basis points to 0.75% on March 16.
FISCAL STIMULUS – The government will make emergency cash payments to all but the richest families, totalling 9.1 trillion won ($7.5 billion), drawing up a second supplementary budget in April. Initial supplementary budget worth 11.7 trillion won; 50 trillion won in emergency financing for small businesses; key capital flow rules temporarily further loosened to encourage local financial institutions to supply more dollars.
South Korea on April 7 doubled its planned economic rescue package to 100 trillion won. The package includes 29.1 trillion won in loans to small- and medium-sized companies, while another 20 trillion won will be used to buy corporate bonds and commercial paper of companies facing a credit crunch.
South Korean President Moon Jae-in said on April 8 the government would make an additional 36 trillion won of cheap loans available to exporters hit by the coronavirus. Moon also said fresh measures worth 17.7 trillion won would be rolled out to boost consumption and support domestic demand.
INDONESIA
MONETARY STIMULUS – Bank Indonesia cut its seven-day reverse repurchase rate by 25 basis points to 4.50% on March 19.
LIQUIDITY AND FUNDING – Indonesia’s central bank on April 14 cut the reserve requirement ratio by 200 bps for banks and by 50 bps for Islamic banks while also tweaking other liquidity rules, effective May 1.
FISCAL STIMULUS – Jakarta announced an additional $24.9 billion in spending on March 31, including a 3 percentage point reduction in the corporate tax rate to 22%. Other measures were expanding social welfare to benefit up to 10 million households, food assistance and electricity tariff discounts and waivers.
AUSTRALIA
MONETARY STIMULUS – The Reserve Bank of Australia cut rates in two steps (25 bps on March 3, 25 bps on March 19), taking the cash rate to 0.25%; introduced the first use of quantitative easing, setting a target of around 0.25% for bond yields.
LIQUIDITY OPERATIONS AND FUNDING – A A$90 billion ($56 billion) funding facility to banks at fixed rate of 0.25%; A$15 billion purchase programme of residential mortgage-backed and other asset-backed securities; A$715 million support programme for airlines.
FISCAL STIMULUS – A$66.1 billion in assistance for companies and additional welfare payments; A$17.6 billion in subsidies for apprentices, small businesses, pensioners and others; A$130 billion to subsidise wages of an estimated 6 million people.
BRAZIL
MONETARY STIMULUS – Central Bank of Brazil cut interest rates by 50 basis points to 3.75% and eased capital requirements for financial institutions.
LIQUIDITY OPERATIONS AND FUNDING – 1.2 trillion reais ($231 billion) central bank programme to inject liquidity through purchases of bank loan portfolios; new rules allowing banks to offer firms and households increased loans and better terms; central bank intervention in FX markets and repurchases of dollar-denominated sovereign bonds.
FISCAL STIMULUS – 150 billion reais budget boost to support most vulnerable population and jobs; presidential decree declaring national emergency allowing the government to waive fiscal targets and free up budget resources.
Brazil’s government on April 1 launched a 51 billion reis programme that will allow companies hit by the coronavirus crisis to reduce workers’ salaries and hours, or temporarily suspend contracts, in order to preserve jobs.
SOUTH AFRICA
MONETARY STIMULUS – South African Reserve Bank (SARB) cut its main lending rate by 100 basis points to 5.25% on March 19.
The central bank chopped another 100 basis points on April 14, taking the rate to 4.25%.
LIQUIDITY OPERATIONS AND FUNDING – The SARB announced on March 25 a programme to buy bonds on secondary market.
FISCAL STIMULUS – South Africa said on April 6 it would set aside 1.2 billion rand ($66 million) to help small-scale farmers in a bid to support food production.
(Compiled by Reuters Polls; Editing by Catherine Evans/ Hugh Lawson/Susan Fenton/Kirsten Donovan)
