The Day at a Glance | April 22 2020

US Senate approves new fiscal package

The US Chamber of Senators iounanimously approved an additional $484 billion dollar package yesterday in order to aid businesses during the health emergency. This will be sent to the House of Representatives, where increasing the amount of resources is being discussed and will be voted on Thursday. This is the fourth law that goes through Chamber of Senators and the House of Representatives with the objective of soothing the economic situation in the US, and if passed, the packages would total more than $3 trillion dollars. The new law aims at providing small businesses with resources, as past programs were taken by large companies. In fact, some took advantage of legal loopholes in order to obtain aid from the government, which left no resources for small businesses. This new law seeks to avoid this from happening again. The law proposes $321 billion dollars to aid businesses, $60 billion for a disaster fund, and $25 billion for COVID-19 testing. According to democrat leader Chuck Shumer, the US government is working on a fifth aid project whose proportions will be similar to the $2.3 trillion package approved at the end of March. According to most recent forecasts, the US fiscal deficit could quadruple in 2020 and reach $4 trillion dollars, while the debt would surpass the historical maximum level reached after WWII (106% of GDP) for 2023. These forecasts only include the first three fiscal stimulus programs approved up to now.

Mexico`s central bank cuts interest rates to their lowest level in three years

After an extraordinary meeting yesterday, the central bank`s Governing Board decided to cut interest rates in 50 bps to set it at 6%. The emergency caused by the pandemic and its economic effects are the main reason for the cut, with Banxico estimating a 5% GDP contraction in the first semester of the year. According to the Board, the economic contraction along with a fall in oil prices will help reduce inflation, which gives it more room for maneuver to carry out more aggressive cuts. Cuts are likely to keep taking place as time moves forward, as long as depreciation regarding the exchange rate doesn`t create important inflationary pressures. Additionally, Banxico presented a list of measures to back liquidity in local markets (both debt and foreign exchange) and will implement measures to incentivize financial institutions to grant credit. Measures total 750 billion pesos (3.3% of GDP) and include direct transfers to institutions for them to continue lending to homes, small and medium businesses, and repo transactions to give financial intermediaries liquidity (with government and corporate debt as a guarantee), direct financing to banking institutions and currency hedging with American institutions. This is an aggressive program that Mexico`s central bank is carrying out and must be complemented with greater fiscal stimulus on behalf of the government.