March 27, 2020 | 15:12
G7 Fiscal and Monetary Responses to COVID-19
G7 Fiscal and Monetary Responses to COVID-19
Policy responses to the COVID-19 outbreak have been rolling out steadily in recent weeks. Actions by major central banks have been swift and unprecedentedly aggressive, including interest rate cuts to, or near, financial-crisis lows, and a spate of quantitative easing and liquidity measures.
On the fiscal front, the response has been slower to take shape, in part because of procedural hurdles. Nevertheless, G7 governments have rolled out direct support in the range of roughly 1.5%-to-7.5% of GDP. Many of the measures have been aimed at supporting workers through a period of self-isolation or job loss, and supporting near-term cash flow to help keep businesses solvent through what is expected to be a short but extremely deep downturn.
Fiscal and Regulatory Policy
Direct support estimated at $100 billion (4.2% of GDP), with $80 billion assumed at the federal level (cost estimate pending on some programs), and provincial measures assumed at $20 billion (many still evolving).
Emergency Care Benefit up to $2,000 per month, for up to 4 months, for those without EI benefits.
One-time GST credit in May 2020, of $400 per individual.
Temporary increase in Canada Child Benefit for the 2019-20 period, by $300 per child.
Six-month interest free period for student loan repayments.
The minimum RRIF withdrawal amount will be reduced by 25% for 2020.
Tax filing deadline for individuals extended to June 1, 2020; deferred payment on balances owing until after August 31, 2020.
Business wage subsidy of 75% of payroll value (details and cost pending); government backed loan up to $40,000 interest free for one year, with $10,000 forgivable for some businesses (details and cost pending).
BDC and EDC will provide $10 billion of lending to small- and medium-sized businesses; OSFI’s 1.25% capital buffer reduction will free $300 billion of lending capacity.
Ottawa is recommending that lenders be open to support including mortgage payment deferral and relief on credit products. CMHC will allow lenders to allow payment deferral on insured mortgages, and other measures such as re-amortization are encouraged.
Direct support of $1.6 trillion (7.5% of GDP) via three phases.
Phase one: Only $8 billion to fund vaccine development and state and local governments.
Phase two: $100 billion for enhanced unemployment insurance and tax relief for businesses.
Phase three: A whopping $2.2 trillion in direct spending increases, tax reductions and loans:
Direct support of €156 billion (4.5% of GDP).
Economic Stabilization Fund (WSF) will be used to fund €200 bln in loans (to recapitalize companies in need, and to state development bank KfW).
Direct support of €45 billion (2.0% of GDP).
Includes large cuts to social-security contributions and corporate taxes; unemployment benefits.
Will guarantee bank loans of up to €300 billion to help businesses.
Direct support of €25 billion (1.4% of GDP).
Support for health care, laid-off workers; boosted loan guarantee fund for small- and mid-sized companies; compensation for firms; moratorium for mortgage payments; rental assistance; one-time payout of €500 for self-employed or seasonal workers.
A €340 bln business credit line to inject liquidity into banking system.
Direct support of £30 billion (1.4% of GDP).
A £350 billion package including a government loan guarantee scheme for businesses.
Grants to cover 80% of workers’ salaries if kept on payroll, up to £2,500 per month.
A three-month mortgage holiday,
Budget included £30 billion of additional support for public services, individuals and businesses.
Fiscal package of ¥56 trillion under consideration (10% of GDP).
Covers cash given directly to households in May, and coupons and gift certificates to businesses impacted by the coronavirus.
Monetary Policy Actions
Bank of Canada
Policy rate cut 150 bps to 0.25%; quantitative easing to buy GoCs at least $5 bln/week across the yield curve until recovery is well underway. Link
Term repo facility (6- and 12-month term). Link
Eligible collateral for liquidity facilities has been expanded broadly. Link
Purchasing CMBs on the secondary market; up to $500 mln/week. Link
Bankers’ Acceptance Purchase Facility buys BAs out to 3 months, up to $20 bln per operation. Link
Policy rate cut 150 bps, to the 0%-to-0.25% range. Link
Discount rate cut by 150 bps to 0.25%, borrowing encouraged with loans up to 90 days. Link
Quantitative easing to buy Treasuries and MBS "in the amounts needed". Link
Shift $60 bln monthly bill purchases for reserve management purposes to all securities.
Commercial Paper Funding Facility (CPFF) (re)established to buy 3-month CP from primary dealers. Link
Primary Dealer Credit Facility (PDCF) (re)established. Loans to primary dealers with an expanded collateral. Link
Money Market Mutual Fund Liquidity Facility (MMLF) established. Loans to financial institutions secured by assets purchased by the financial institution from money market mutual funds. Link
Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds. Link
Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses. Link; Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses. Link
Beefed up USD swap lines with major central banks. Link
Pandemic Emergency Purchase Programme (€750 billion), allowing more asset purchases until the end of 2020 Link; with more "flexible" purchases under the capital key requirement. Total purchases now equate to €1.1 trln.
Term Funding Scheme for small and medium firms, financed by bank reserves. Link
Cut the Countercyclical Capital Buffer rate to 0% (from 1%) for at least 12 months. Link
Increased asset purchases; specifically, for ETFs at an annual pace of around ¥12 trln (current pace was ¥6 trln), and REITs at an annual pace of ¥180 bln; measures to facilitate corporate financing. Link