What should businesses do?
Be proactive in the following areas:
- Fortify capital structure — Ensure sufficient committed capital and cashflow runway (i.e., handle the economic disturbance of COVID-19). The positive news is that debt capital markets in Canada and the US continue to be strong; however, the spread of the virus has repriced risk across a broad set of assets, making financial conditions less accommodative.
- Revise your business plan — If you haven’t already, review your 2020 priorities, stress your balance sheet and determine course-correction actions.
- Seek advice and/or professional services, as most businesses are entering into uncharted markets.
The BoC and the Fed have taken proactive measures in reducing short-term overnight borrowing rates twice in March to support the economy during the COVID-19 pandemic. As of the time of writing, the BoC overnight borrowing rate was 0.75% and the Federal Reserve was near zero at 0.25%. Both central banks have announced additional support, such as $10b business credit line in Canada and the Federal Reserve purchasing another US$700b worth of Treasury bonds and mortgage-backed securities. Both Canada and the US will be monitoring their respective economies closely and continue to hold meetings with G7 central banks in coordinating a global effort in mitigating a potential downturn in the business cycle.