With the effect of the COVID-19 pandemic shutting down businesses and markets in countries around the world, banks and governments are moving to provide stimulus to avoid a major recession.
There has been near panic selling on stock markets which have dropped dramatically over fears of the combined effects of disrupted supply chains and any number of event cancellations, with some workers off sick or in isolation while others face various work restrictions.
On Thursday last week the S&P/TSX composite index fell 12 per cent which was the biggest one day drop in 80 years.
On Friday, Canada’s central bank made an unscheduled announcement of a cut to its main lending rate to a new level of 0.75%. This new rate takes effect today. The next regularly scheduled Bank of Canada announcement is set for mid April. It may announce a further cut at that time as other national banking institutions have already made deeper cuts to cope with severely flagging economies.
This month the American Federal Reserve Bank lowered its rate to near zero with rates from 0.00 to 0.25 per cent.
Traders work on the floor at the New York Stock Exchange on Feb. 25, 2020. Stock markets around the world have dropped considerably since the outbreak of COVID-19 and its combined effect on supply chains and demand (Brendan McDermid/Reuters
Also effective today is a co-ordinated move by the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank together have taken action to enhance the provision of liquidity via the standing US dollar liquidity swap line in an effort to ensure there is an adequate contingency dollar reserve to cope with the evolving economic situation.
At an emergency meeting this weekend the The Reserve Bank of New Zealand cut its rate from 1.0 per cent to 0.25 per cent effective today.
The Bank of England on March 10 had reduced its rate by 50 basis points to 0.25%
Australia’s central Reserve Bank is also expected to make another announcement on Thursday after making a cut to 0.50% earlier this month.
Governments and central banks in countries around the world have cut rates to promote borrowing and spending and also announced a number of stimulus and mitigation measures to prop up the rapidly weakening domestic economies and global markets.
Additional information-sources
- Bank of England: Mar 10/20: Bank of England measures to respond to the economic shock from Covid-19
- CBC: JP Tasker: Mar 12/20: Ottawa announces $10 billion business credit line, plans to roll out stimulus package as COVID-19 spreads
- Australian Broker: M. Utley: Mar 16/20: Fed makes record-setting interest adjustment
- Financial Post: N. Powell: Mar 13/20: ‘Extraordinary times’: Interest rates slashed, fiscal stimulus amplified as Ottawa battles COVID-19
- The Street: A. Smith: Mar 15/20: Fed Cuts Rates Close to Zero Response to Covid-19 Crisis
- Investopia; G. Alpert: Mar 16/20: Here’s what governments are doing to stimulate their economies
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