Major Countries Begin Full-Scale Policy Responses to COVID-19... Will Efforts Work in the Market?

Fed Cuts Base Rate by 0.5%p on 3rd... Korean Government Also Announces Comprehensive Measures for Livelihood and Economy

Jerome Powell, Chairman of the U.S. Federal Reserve (Photo by AP Yonhap News)

[Asia Economy Reporter Geum Bo-ryeong] As concerns over the novel coronavirus infection (COVID-19) grow, major countries around the world have begun to actively implement policy responses. Attention is focused on whether the efforts of each country will be effective.

On the 3rd (local time), the U.S. Federal Reserve (Fed) abruptly cut the benchmark interest rate by 0.5 percentage points. This is interpreted as an attempt to stabilize the market through monetary easing policies amid increasing global economic uncertainty due to fears of the COVID-19 pandemic. Fed Chair Jerome Powell also strongly hinted at a rate cut in an emergency statement issued on the 28th of last month.

In Japan, the Bank of Japan indicated on the 2nd that it would provide additional liquidity to stabilize the financial market. This special measure involves supplying 500 billion yen over two weeks through the purchase of government bonds from financial institutions. Italy, where confirmed COVID-19 cases and deaths are rapidly increasing, has decided to prepare an emergency budget of 3.6 billion euros to cope with economic damage. France has allowed companies affected by COVID-19 to defer tax payments.

China has been steadily announcing stimulus measures. The People's Bank of China lowered the policy rate for the one-year Medium-term Lending Facility (MLF) loans by 0.10 percentage points and decided to extend the loan principal and interest repayment deadlines until the end of June for small and medium-sized enterprises meeting certain conditions.

The South Korean government also expanded the financial intermediary support loan limit by 5 trillion won to help companies affected by COVID-19 and announced a comprehensive livelihood and economic plan to minimize the impact of COVID-19 and achieve early recovery, including reducing the individual consumption tax on passenger cars.

Reactions to the policies of each country have begun to appear gradually. The KOSPI, which had fallen to 1980 points on the 28th of last month, recovered to 2002.51 on the 2nd and 2014.15 on the 3rd. The KOSDAQ also rose from 610.73 to 626.82. During the same period, the Shanghai Composite Index increased from 2880.30 to 2992.90, the UK FTSE 100 Index from 6580.61 to 6718.20, and the French CAC 40 Index from 5309.50 to 5393.17.

However, despite the U.S. rate cut, concerns over COVID-19 grew, and on the 3rd, the Nasdaq Composite Index fell by 2.99%, the Dow Jones Industrial Average by 2.94%, and the S&P 500 Index by 2.81% compared to the previous session. Park Sang-hyun, a researcher at Hi Investment & Securities, said, "The sharp decline in the U.S. stock market alone cannot be used to judge the Fed's rate cut as a wrong prescription. This rate cut is clearly aimed at responding to the supply shock caused by COVID-19 and also proactively defending against credit risk. The biggest concern during the spread of COVID-19 is not a temporary economic recession but the triggering of a credit crisis similar to a financial crisis due to excessive debt and asset price overheating risks. Therefore, it is clearly positive that the Fed has proactively cut rates to some extent to defend against credit risk."

This content was produced with the assistance of AI translation services.