In response to COVID-19, the Bank of Canada has announced several stimulus programs, that include the:

1. Provincial Bond Purchase Program

2. Money Market Purchase Program

How do you think that these programs will impact bond/money markets? What is the likely impact of these programs on government's borrowing requirements, given large forecasted budget deficits.

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1. COVID-19 has created a temporary need for credit and strong provincial government funding markets. The goal of these two programs are to strengthen the liquidity and efficiency of these markets. The goal in money markets is to make credit affordable for Canadians who rely on credit to continue to pay their employees, and for households that need credit to continue to meet their basic needs. The decline in the economy as a result of COVID-19 was threatening financial turmoil, which would hurt lending activity, making this program necessary. The Provincial Bond Purchase program will increase liquidity in the bond market, although because the program has been limited to 50 billion people believe this is too limited for how much debt is foretasted.
2. The impacts of the corona virus were initially perceived as modest and thought to have only short fluctuations on the business cycle and the financial markets however looking at the stock market's performance around the world observing the fall and tumbling of the financial markets at the early stage of the virus outbreak which eventually led to deeper impact on the global economy more than and beyond what we saw in 2007-2008 financial crisis. Bank of Canada (Canada's Central Bank) followed the American Fed's footsteps by lowering the overnight interest rate by 50 points moving the borrowing cost from 1.75% to 1.25% in hope of encouraging the household and business investment to stay stable and give more confidence to business sentiment. Bank of Canada decided to use unconventional monetary policyquantitative easingby intervening directly in the market and instead of only buying the short term Treasury bills, Bank of Canada has decided to buy all government securities such as provincial and municipal securities long and short term and that has been the approach to pump in more cash to the market which means more money supply and hoping it leads to more and cheaper lending and investment to incentivize consumption expenditure and investment expenditure simultaneously. There are potential consequences for this approach that the economy might move up and with a large amount of money supply might lead to stagflation. On the weekend right before the beginning of the 3^rdweek of March, Central Bank of Canada and on unscheduled rate decision meeting, Bank of Canada cut benchmark rate to .75% percent before it was dropped to 1.25% percent early March in hopes to boost the economy by prompting the chartered banks to lower their prime interest rates and encourage lending the businesses and households in a move to encounter the rebel effect of COVID-19. Bank of Canada slashed the overnight rate to record as low as .75% hoping that remedies and stop the selling wave of bonds and stocks. At the most recent Monetary Policy Report released by Bank of Canada this month July, the overnight rate has been fixed at .25% as effect lower bound target .5% at upper bound as deposit rate. Bank of Canada has announced it is continuation of quantitative easing REPO by purchasing federal, provincial and municipal bonds weekly worth of 2$ billion during a recuperation period in the economy recovery. That has led to market liquidity and avoided a crisis that could have nudged people to withdraw their money simultaneously out of the banks at the very early stage of the outbreak. That has prevented the Canadian economy from slipping into a farther contraction due to the virus spread ramifications on the sudden stop of the economic activities. Given the federal budget deficit outlook of $343 billion in deficit by end of 2020, Bank of Canada policies has reduced the cost of borrowing burden on the Canadian government by reducing the cost of servicing the debt which has provided the government with flexibility to extend its programs to save the Canadians across different sectors and wide ground to maneuver the virus impacts on the Canadian economy.