The Day at a Glance | March 23 2020

FED announces unlimited quantitative easing

The Federal Reserve has announced new stimulus measures that include unlimited purchases of mortgage backed securities (MBS) and US Treasury bonds to maintain low costs of debt; and new programs that ensure credit keeps flowing to corporations as well as state and local governments. These measures seek to support the orderly functioning of markets and reach the effective transmission of a monetary policy that will allow for financial conditions to have more room to work with. The Federal Reserve will provide corporations, cities, states and families that must face the health contingency due to Covid-19 with direct support of close to $300 billion dollars in credit. Among the announced programs, two are focused on guaranteeing liquidity in corporate credit markets (purchases of new bond and credit issues and already existing ones), assets backed by student debt, as well as of automobiles, credit cards, small business loans, purchase of municipal government notes and an increase in the purchase of commercial papers in order to include municipal, high quality debt. The FED`s actions are aggressive and exceed efforts carried out in the past, which could bring back confidence among markets.

Mexico`s Central Bank will act off calendar if necessary: Diaz de Leon

Alejandro Diaz de Leon, the Central Bank`s Governor, assured in an interview it will act in a timely manner and respond to the adverse environment the Mexican economy currently faces. The statements were made after Mexico`s Central Bank surprisingly cut interest rates in 50 bps (to 6.5%) on Friday, once it advanced its monetary policy meeting originally scheduled to take place on Thursday, March 26th. “We`re ready to take decisions whenever necessary”, said Diaz de Leon. As additional measures to ensure liquidity and back the economy, the central bank announced a decrease in bank`s minimum required deposits to the central bank and dollar auctions financed by the swap lines the Federal Reserve opened up with Mexico`s Central Bank last week.

Democrats block fiscal package in the United States

Lawmakers in the US were unable to reach an agreement that would approve a $2 trillion dollar fiscal package this weekend. Despite intense negotiating, Democrats sent back the proposal brought by Republicans, as they considered it to be a corporate sector bailout with insufficient monitoring and control mechanisms. Additionally, Democrats ask for greater resources for hospitals and medical equipment. Currently, Treasury Secretary Steven Mnuchin leads negotiation efforts in order to reach bipartisan support of a fiscal package that will help get around the existing health emergency. Senators from both parties are convinced they will reach an agreement, as they have reached an understanding on the general aspects of the package, however agreeing on the amount of resources aimed at rescuing airlines and other corporations under pressure is still pending.

Germany approves $800 billion package. The German government has agreed to take on $800 billion dollars of new debt in order to counter the pandemic`s negative economic effects. The package includes 156 billion euros to fund public spending and directly aiding companies, in addition to 600 billion euros to be funneled into the corporate sector as credit (including the purchase of minority interests in the most affected businesses). Peter Altmaier, Minister for Economic Affairs and Energy, assured they are determined to help German companies and that the government has done the right thing by announcing the fiscal stimulus. The economy could contract up to (-) 5% in 2020 if no steps are taken, according to Minister of Finance Olaf Scholz.