Monday 17 May 2021

Will policymakers keep interest rates low in order to recover from the outbreak of Covid19?

With no end in sight of the Covid19 pandemic along with uncertainty about the future policymakers must act fast and efficiently to keep the economy moving

Despite 2021 started with good news about vaccine breakthroughs, the fact is Latin America has registered over 2 million cases this year and there is no plausible end to the pandemic since the vaccination results are taking long to show and, to deepen this concern, there is no guarantee the vaccine will be made available for everyone.

With unemployment rates going up, the government’s main concerns turn to keep money moving, meaning that the Central Banks are going to drop their interest rates in order to, theoretically, make borrowing cheaper and encourage spending to boost their economies. Besides unemployment rates going up, the economic recession is also inevitable – and is completely expected.

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Although the stock market has also taken a knock, since the interest rates are dropping lower and lower, more people have turned to free stock trading platforms, in order to achieve a higher rate of return. Back in March 2020, the stock markets hit rock bottom but have been recovering over time, especially after the vaccine announcement in November 2020, however, in general, analysts are concerned that the possibility of future lockdowns or that delays in vaccination programs might trigger high market volatility this year.

As many global supply chains were disrupted and the set of market events related to Covid 19 had an expensive price, the crisis also can be seen as a boost for present and future economic growth.

There are certain sectors that are favored by the pandemic and are gaining the public’s and analyst’s attention, in order to understand the changes that have taken place in the different sectors and try to anticipate the next investment trends. For example, the e-commerce – including home delivery – sector has registered an impressive growth throughout the pandemic along with the gaming industry (explained by the need of people for entertainment) and obviously, the biotech race to the vaccine leveraged the whole sector.

Both private investors and financial institutions are now studying and monitoring current market conditions and if you have an optimistic vision of the worldwide vaccination process and production, it is fair to believe that markets will expand and begin their recovery from the recession as the governments and central banks keep facilitating loans and fiscal policies to stimulate economies.

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The vast majority of countries are following economic expansion policies and the measures are quite alike between most countries. Here are a few examples of the main measures taken by policymakers so far:

  • The USA federal agents have assured that interest rates will remain as close as possible to zero until the general economy recovers from what can be considered the biggest disaster since the 2008 subprime crisis.
  • The Brazilian government has sought to increase liquidity in the financial system by reducing the reserve requirements and capital conservation buffers, and by temporarily relaxing their provisioning rules.
  • In Costa Rica, the measures have been rebalanced and reviewed since December 2020 but it is clear that the government intends to follow an expanding policy as social protection (through moratoriums and relaxed regulations) and beneficial credit lines still stand.

Over in Europe, a number of similar policies were taken but the game-changer is the EU Recovery Plan that has been agreed by all EU member states and consists of over 750 billion euros to be distributed by all the members. Also, on a regional level, each country has taken its own economical expansion measures, very like what is being done in the Americas.

With constant lockdown discussions, nowadays uncertainty rules our daily lives. The fear of more severe economic consequences along with the social ones are forcing governments to act fast in order to avoid bigger tragedies and despite the small recoveries we have already witnessed there is still a long way to go.

The biggest challenge is that there is no end in sight for the pandemic, making it highly plausible that policymakers will continue to request more and more government aid to backup their economies.

 

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FACT CHECK:
We strive for accuracy in its reports. But if you see something that doesn’t look right, send us an email. The Q reviews and updates its content regularly to ensure it’s accuracy.

Carter Maddoxhttp://cjmaddox.com
Carter is self-described as thirty-three-and-a-half years old and his thirty-three-and-a-half years birthday is always on March 3. Carter characteristically avoids pronouns, referring to himself in the third person (e.g. "Carter has a question" rather than, "I have a question"). One day [in 1984], Carter, raised himself up and from that day forward we could all read what Carter writes.

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