Policy support being stepped up

With economic growth across the region collapsing, policy support is being ramped up aggressively. Having slashed interest rates over the past couple of weeks, central banks have begun to unveil a series of unconventional policy measures to support activity and ease strains in the financial markets. In the Philippines, the central bank has announced that it will begin purchasing 300bn peso (approximately 1.5% of GDP) in bonds directly from the government, while the Bank of Korea today adopted its own version of QE, whereby financial institutions will be able to borrow unlimited amounts of money from the central bank at an interest rate of 0.85%. Fiscal support is also being scaled up. Singapore today announced a second supplementary budget worth around 8% of GDP, which in addition to the measures unveiled in February’s budget, takes the total support package to 11% of GDP. Korea is also putting the final touches together of a deal set to be worth 5% of GDP. While policy loosening won’t prevent a sharp economic slowdown in the first half of the year, it should ensure that the region bounces back strongly if/when the virus is contained.