Talking Point: ‘COVID-19 revival hinges on stimulus’

“For the first time, in 60 per cent of the global economy – including 97 per cent of advanced economies – central banks have pushed policy interest rates below 1 percent. In one-fifth of the world, they are negative,” Gopinath wrote in an op-ed article in the Financial Times, adding central banks have little room to further cut interest rates if another shock strikes, a news agency had reported.

“It has led to the inescapable conclusion that the world is in a global liquidity trap, where monetary policy has limited effect. We must agree on appropriate policies to climb out,” Gopinath said on Monday, noting fiscal policy must play a leading role in the recovery.

Gopinath suggested that fiscal authorities can actively support demand through cash transfers to support consumption and large-scale investment in medical facilities, digital infrastructure and environment protection.

“These expenditures create jobs, stimulate private investment and lay the foundation for a stronger and greener recovery,” she said.

Gopinath also noted that “the importance of fiscal stimulus has probably never been greater.”