Policy decisions by Central Banks / Monetary Authorities to combat economic fall-out of COVID-19

Economic activity across the globe has come to a standstill as the COVID-19 pandemic situation is not normalizing. The International Monetary Fund (IMF) has stated that this economic situation will be the worst downturn since the Great Depression.

The recovery of this situation will depend on the policy measures taken by the respective governments and monetary authorities. Here we have shortlisted some of the measures that are already taken or being considered by the Central banks / monetary authorities of some major countries to combat the economic fall out of the COVID-19 pandemic.

1. Lowering the interest rate applied in targeted longer-term refinancing operations during the period from June 2020 to June 2021 (25 basis points below the average rate).
2. Launching of new asset purchase program called Pandemic Emergency Purchase Programme, amounting to €750 billion.
3. Conducting additional longer-term refinancing operations (LTROs) temporarily (with an interest rate equal to the average rate on the deposit facility, -0.50% currently).
4. Reduction in the capital conservation buffer, systemic risk buffer and the liquidity coverage ratio.
5. Easing collateral standards to give easier access to ECB liquidity.
6. Flexibility regarding the treatment of non-performing loans (NPLs).

United States:

1. Lowered interest rates by 100 basis points to 0 – 0.25%.
2. Establishment of temporary dollar liquidity arrangements (swap lines) with a number of other central banks.
3. Started large scale asset purchases i.e. treasury securities and agency mortgage backed securities.
4. Various measures to prevent credit markets seizing up including injection of liquidity into the reserve purchase market, setting up funding facilities, intervention in the bond markets, reducing reserve requirements, relaxing capital buffers.
5. 60 days moratorium on evictions and foreclosures for single family homeowners.

China:

1. 1 and 5 year benchmark rate lowered by 10 basis points.
2. Issuance of first batch of special bonds equivalent of CNY 135 billion.
3. Support financial institutions in issuing CNY 300 billion to lend to SMEs.
4. Reduction in the Required Reserve Ratio (RRR) by 1% for targeted small and medium-size banks. Also, the interest paid on excess reserves has been cut to 0.35% from 0.72%.
5. Relending/rediscount loans of CNY 500 million.
6. Extension in repayment schedules for mortgages, credit cards and other debt of those people who temporarily lost income because of COVID-19.

United Kingdom:

1. Reduction in Policy rate from 0.75% to 0.15%.
2. Lifting of the GBP 370 million cap on the government’s Ways and Means (W&M) facility.
3. Quantitative easing of around GBP 200 billion.
4. Introduction of the COVID Corporate Financing Facility (CCFF) for businesses with minimum amount GBP 1 million per participant.
5. Induction of Term Funding scheme for Small and Medium-sized Enterprises (TFSME) for lending to SMEs.
6. Minimizing in the Countercyclical Capital Buffer (CCB) rate to 0% to enable banks to supply additional credit.

Turkey:

1. Reduction in policy rate from 10.75% to 9.75%.
2. Liquidity measures such as to inject liquidity through repo auctions with maturities of up to 91 days, Liquidity limits of Primary Dealers in Open Market Operations (OMOs) were increased, Foreign exchange reserve requirement ratios reduced by 500 basis for banks.
3. Increase in the maximum limit available for OMO from 5% to 10%, to facilitate its purchases of Government Domestic Debt Securities (GDDS) from Primary Dealers.
4. Postponement of the customers’ principal and interest payments for at least three months upon request,
5. Increase in the number of days to be passed in the delay period for classifying a loan as non-performing from 90 days to 180 days.
6. Reduction in the minimum front payment ratio for credit card transactions from 30% to 20%.
7. Increase in the Loans to Collateral ratio on mortgage loans from 80% to 90%.

India:

1. Reduction of 75 basis points in the policy repo rate from 5.15% to 4.40%.
2. Cut the reverse repo rate by 25 basis points from 4.0% to 3.75%.
3. Announced several liquidity measures including long-term repo operations up to INR 1 trillion, open market operations, reduction in the cash reserve ratio requirements.
4. 3 months moratorium on debt-servicing of all term loans outstanding and deferment of interest on working capital loans for 3 months.
5. Increased the temporary loans limit of states by 60%.
6. Conducted swap auctions which provided dollar liquidity of USD 2.71 billion on cumulative basis.
7. Increase in the threshold for invoking insolvency by 100 times to INR 10 million. Suspension of the Insolvency and Bankruptcy Code for six months is also being considered.
8. Temporary reduction in the liquidity coverage ratio for banks and an extension in bankruptcy resolution timelines from 210 days to 300 days.

Pakistan:

1. Reduction in policy rate by 425 basis points to 9.0 %.
2. introduction of various refinance schemes such as a) SBP Refinance Scheme to Support Employment and Prevent Layoff of Workers will directly support to keep the employment of workers and avoid layoffs. The scheme provides low-cost financing for wage expenses for three months from April to June 2020 for those businesses which do not layoff their employees for these three months, b) Refinance Facility for Combating COVID-19 (RFCC) to support hospital and medical centers to purchase medical equipment to detect, contain and treat the pandemic, c) Temporary Economic Refinance Facility (TERF) to facilitate new investment across manufacturing sectors.
3. Regulatory limit on credit to SMEs has been increased from PKR 125 million per SME to PKR 180 million. Likewise, The Debt Burden Ratio for consumer loans has been relaxed from 50 to 60 percent.
4. Payment of principal on loan obligations will be deferred for one year by banks on the request of borrower.
5. The Capital Conservation Buffer (CCB) requirement for banks has been temporarily reduced from 2.5 percent to 1.5 percent.
6. Waiver of all charges on fund transfers through online banking channels.