Interest Rates During COVID-19

Interest Rates During COVID-19 08/07/2020

Today, with the rumblings of ‘recession’ or ‘depression’ being thrown around globally, let us look at how different parts of the world are using interest rates to dismiss these reports.

In the US, the Federal Reserve (The Fed) controls interest rates and controls the nation’s monetary policy. As the global pandemic has hit the US hard, the Fed has responded by lowering interest rates. The Fed cut rates down to close to zero percent in March, and more recently Federal Reserve Chairman Jerome Powell has insisted that rates will stay close to zero for an extended period, likely into 2022 Powell believes. And with unemployment rates in the states reaching a dangerously high 11.1% in June, and many states seeing a reemergence in the number of COVID-19 cases, causing a delay in any economic rebound, interest rates will continue to be lowered in the US.

Within the EU, the ECB carries out many of the same functions of the Fed, by implementing appropriate monetary and economic policies. Since 2014, the ECB has set interest rates below zero, into negative percentages. The idea behind this policy to encourage banks to lend and encourage spending by offering a credit interest as opposed to paying interest. Today, the ECB is helping to promote an economic rebound by maintaining or lowering rates from their current rate of -0.5%, the lowest the ECB has ever recorded. As COVID-19 restrictions vary across Europe, so will the rebound economically speaking. Here in the UK, the Bank of England has continued to slash the interest rates from 0.75% to 0.1% most recently, following the trend with the ECB and Federal Reserve to promote economic growth. With lockdown restrictions beginning to be lifted here in the UK one can hope that the increase in consumer spending that will be seen from this will be the steppingstones to begin an economic rebound.

In China, The People’s Bank of China (PBOC) has held interest rates higher than both Europe and North American nations. However, interest rates have been cut in recent months to the lowest rate China has seen in the last decade of 3.85%. The trend of decreasing interest rates can be seen in Europe, the US, neighboring North American nations, and China. What these lows in interest rates are intended to do is to encourage borrowing from banks to promote a stimulus in spending and therefore total GDP in individual countries. With the shutdowns caused by COVID-19 nations can only hope that these monetary policies, coupled with the lifting of lockdown restrictions, will be enough to jump-start struggling economies throughout the globe.

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