Govts and central banks ramp up economic response to virus

US Federal Reserve chief Jerome Powell said the US central bank "will use our tools and act as appropriate to support the economy".
US Federal Reserve chief Jerome Powell said the US central bank "will use our tools and act as appropriate to support the economy".PHOTO: AFP

Governments and central banks yesterday stepped up efforts to shield the world economy from the impact of the coronavirus, which experts say may have already sent growth into reverse.

Investors welcomed indications from leading central banks that they stood ready to intervene, with global stock markets shooting higher yesterday after a brutal sell-off last week.

US Federal Reserve chief Jerome Powell started the effort last Friday, saying the US central bank "will use our tools and act as appropriate to support the economy".

The Bank of Japan said yesterday in a rare statement that it "will strive to provide ample liquidity and ensure stability in financial markets" after the disease infected nearly 90,000 people worldwide in 68 countries and caused more than 3,000 deaths.

The Bank of England said it was watching the situation and working closely with domestic "as well as our international partners to ensure all necessary steps are taken to protect financial and monetary stability".

Bank of France chief Francois Villeroy de Galhau said "targeted measures" from governments to support affected businesses were more appropriate than central bank action as ample cheap money was already available to companies.

The prospect of central banks' action is helping to halt the worst rout in stock markets since the global financial crisis over a decade ago.

Shanghai led gainers, rising 3.2 per cent after dropping more than 5 per cent last week, while Hong Kong was up 0.6 per cent after a loss of around 4 per cent.

Tokyo was up 1 per cent, while Seoul added 0.8 per cent.

Singapore put on 0.3 per cent before closing 0.1 per cent lower due to a late dip, and Sydney fell 0.8 per cent after Australia reported its first death from the virus.

Europe made a blistering start but the gains slipped, with Italian stocks under the most pressure as the epicentre of the region's virus cases.

Wall Street opened higher yesterday, with the Dow Jones Industrial Average up 0.9 per cent. The S&P 500 was up 0.7 per cent at the opening bell after losing over 11 per cent last week.

Governments, meanwhile, appeared to be moving to coordinating their economic efforts to combat economic disruptions caused by the coronavirus.

Group of 7 and euro zone finance ministers will hold conference calls tomorrow to "coordinate their responses" to the impact of the coronavirus on the global economy, French Finance Minister Bruno Le Maire said yesterday.

Italy's government is already seeking to widen its budget deficit to pay for at least €3.6 billion (S$5.6 billion) in proposed emergency economic measures.

Indonesia's central bank has lowered the amount banks need to keep on reserve, to shore up liquidity in its markets.

The Organisation for Economic Cooperation and Development (OECD) yesterday urged governments to "act swiftly and forcefully" to overcome the outbreak and take measures to protect the incomes of vulnerable social groups and businesses.

Governments could help by providing unemployment insurance for workers placed on unpaid leave and by covering virus-related health costs for all.

Measures that reduce or delay tax or debt payments or lower energy costs for firms in hard-hit regions and sectors should be considered, the OECD said, as well as temporary reductions in the level of reserves that banks are required to hold at the central bank.

But in a potential template for others, the Bank of Korea last week opted against a rate cut and instead leaned on targeted support for the companies most affected.

BLOOMBERG, REUTERS, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on March 03, 2020, with the headline 'Govts and central banks ramp up economic response to virus'. Print Edition | Subscribe