Publication date: 5 April 2020 | Covering: March 2020
Monthly Briefing
- WHO declares COVID-19 pandemic March 11; global lockdowns; unprecedented economic disruption
- Fed emergency cuts March 3 (-50bps to 1.00–1.25%) and March 15 (-100bps to 0.00–0.25%); unlimited QE
- CARES Act US$2.2 trillion signed March 27; largest US fiscal package in history
- Jamaica declares COVID restrictions March; borders closed; tourism halted; State of Emergency in parishes
- BOJ emergency measures; overnight rate cut to record low; NHT preparing mortgage relief
- NHT individual ceiling J$6.5 million; rates 0, 2, 4 per cent; market in emergency holding pattern
The Pandemic Emergency: March 2020 in Historical Perspective
March 2020 will be recorded as one of the most consequential months in modern economic history. The COVID-19 outbreak, which had been building since early 2020 in China and spreading to Europe and North America, escalated rapidly into a global pandemic emergency. The World Health Organisation declared COVID-19 a pandemic on 11 March, as case counts in Italy, Spain, the United States, and dozens of other countries climbed exponentially. In the weeks that followed, governments across the world implemented emergency restrictions of a scope and scale unprecedented outside of wartime: shops, restaurants, schools, entertainment venues, and non-essential businesses were closed; international travel was suspended; and populations were instructed to stay at home. The economic activity that these measures suppressed was extraordinary in its breadth — encompassing tourism, hospitality, retail, entertainment, transportation, and much of the service sector.
For Jamaica, the pandemic emergency struck at the foundation of the economy. Tourism — which in the 2018 to 2019 season had attracted more than four million visitor arrivals and generated billions of dollars in foreign exchange earnings and employment — was shut down almost overnight. The government closed Norman Manley and Sangster International Airports to commercial passenger traffic from 23 March, halting inbound tourism entirely. The closures coincided with the most important period of the 2019 to 2020 winter season, compounding the economic damage. The Holness government declared a series of COVID-related orders under the Disaster Risk Management Act, imposing curfews, restricting gatherings, and closing non-essential businesses.
Federal Reserve Emergency Response: Unprecedented Speed and Scale
The Federal Reserve’s response to the COVID-19 economic shock was extraordinary in both its speed and its scope. On 3 March 2020 — in an emergency inter-meeting action — the FOMC cut the federal funds rate by 50 basis points to 1.00 to 1.25 per cent, the first emergency inter-meeting cut since 2008. The move came in response to the deteriorating global economic outlook and the financial market volatility that had gripped equity and credit markets in the preceding weeks. Financial markets had fallen sharply from their February peaks, with the S&P 500 declining approximately 30 per cent from its all-time high as the pandemic’s economic implications became clear.
Twelve days later, on 15 March, the FOMC took an even more decisive action: cutting the federal funds rate by a further 100 basis points to 0.00 to 0.25 per cent, and committing to purchase at least US$500 billion in Treasury securities and US$200 billion in agency mortgage-backed securities, with the announcement that these purchases would be expanded “as needed to support smooth market functioning.” This effectively represented a commitment to unlimited quantitative easing. In the weeks that followed, the Fed stood up an extraordinary array of emergency lending facilities: the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, the Primary Dealer Credit Facility, the Term Asset-Backed Securities Loan Facility, and programmes to support corporate bond and municipal markets. The combined effect was to prevent the pandemic’s economic shock from triggering a repeat of the 2008 financial crisis.
CARES Act: The US Emergency Fiscal Response
The US Congress passed the Coronavirus Aid, Relief, and Economic Security Act on 25 March, and President Trump signed it into law on 27 March 2020, enacting the largest single piece of fiscal legislation in US history at approximately US$2.2 trillion. The CARES Act provided US$1,200 direct payments to most American adults, created an enhanced federal unemployment insurance supplement of US$600 per week on top of state benefits, established the Paycheck Protection Programme to support small businesses, provided US$500 billion in corporate and state government loans, and dramatically expanded healthcare funding. The act was an acknowledgement that the scale and deliberateness of the economic shutdown — imposed by government action to suppress the pandemic — required government to replace the incomes that the shutdown had eliminated.
Jamaica’s Mortgage Market: Emergency Footing
The Bank of Jamaica responded to the pandemic emergency with an accelerated reduction in its overnight policy rate, bringing it to a historically low level to support the economy and the financial system. The BOJ also implemented measures to ensure adequate liquidity in the banking system and to support continued credit flows. The commercial banking sector, while sound going into the crisis, was confronting the prospect of significant credit quality deterioration as borrowers across multiple sectors faced sudden and severe income shocks. Mortgage portfolios were subject to the same risk: homeowners in tourism, hospitality, and other affected sectors faced acute financial pressure that could translate into delinquencies and defaults without intervention.
The National Housing Trust was preparing mortgage relief measures for affected contributors, including payment deferral options and restructuring facilities. The NHT’s J$6.5 million individual loan ceiling and subsidised rates of 0, 2, and 4 per cent remained the operational framework, but the priority in the immediate term was protecting the existing loan portfolio and supporting contributors in distress rather than expanding new lending. Property market transaction activity was sharply reduced by the pandemic restrictions, with valuations, legal services, and physical inspections all constrained by the lockdown environment.
Looking Ahead
The immediate priority for Jamaica and for the global economy is the containment of the pandemic. The economic outlook is extraordinarily uncertain: recovery timelines depend critically on the trajectory of the pandemic, the development of effective treatments or a vaccine, and the pace at which restrictions can safely be lifted. The Federal Reserve’s April 28 to 29 meeting will provide the next formal FOMC assessment. For Jamaica, the April and May period will define how deep the COVID-driven contraction becomes and how effectively the government’s support measures cushion the impact on households and businesses, including those in the property market.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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