SINGAPORE: Asian central banks moved aggressively on Saturday (March 14) to counter the market carnage on Friday, pumping liquidity into the financial system and discussing emergency action to fight the global economy’s biggest threat since the financial crisis.
The People’s Bank of China injected US$79bil into the economy through a reduction in reserve ratios for banks.
The Bank of Korea is considering a special meeting to tackle wild swings in the foreign-exchange market, and Japan offered to provide as much as 2.2 trillion yen (US$20.8bil) of liquidity in three different operations.
Friday’s market sell-off followed Wall Street’s worst day since 1987 as investors worried the global economy would plunge into recession.
Policy makers in Asia Pacific have been acting for weeks to counter the economic blow from the coronavirus outbreak, but are now being pushed to do even more.
"Asian central banks will have to be more aggressive in easing policy and cutting interest rates, ” said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte. in Singapore. "Conventional monetary policy may not be effective under this crisis of confidence and fear.”
Asian stocks later pared some of Friday’s early losses, while US futures pushed higher. Global equities are still heading for their worst week since 2008 after the US benchmark index fell 9.5% Thursday.
Chua suggests Asian central banks coordinate action and unveil a program of buying exchange-traded funds to curb an indiscriminate sell-off across markets and "put a floor to this senseless panic.”
The PBOC offered discounts to banks’ reserve ratios of between half and 1 percentage point from their original level. Joint-stock banks will get an additional reduction of 1 percentage point and together the cuts will release 550 billion yuan (US$79bil) of liquidity.
The Bank of Japan also agreed to an emergency meeting with the finance ministry and regulators as officials try to calm markets with bond buying.
The central bank bought 101.4 billion yen of exchange-traded funds, the sixth time this month that purchases were made in that amount.
Australia’s central bank injected A$8.8 billion (US$5.5bil) in its open-market operations, the most in at least seven years.
Indonesia’s central bank bought 6 trillion rupiah (US$405mil) of government bonds to prop up financial markets, adding to 8 trillion rupiah of bonds purchased on Thursday.
The Reserve Bank of India plans to add 250 billion rupees (US$3.4bil) through short-term repurchase operations after announcing Thursday a US$2bil injection into the foreign-exchange market.
Global central banks action in recent weeks has done little to calm market jitters as the virus fanned out and started to dent economies across Europe and in the US The Federal Reserve and Bank of England surprised with emergency rate cuts, while the European Central Bank on Thursday pledged asset purchases and looser lending requirements.
"During this run-up, there seems to be almost a sense that aspirations of coordinated policies -- by design or inadvertently -- end up looking like competitive policies, ” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. "Those things are not going to be helpful for the shape of the recovery.”
Japan, Indonesia and the Philippines are scheduled to hold interest rate decisions March 19, hours after the Federal Reserve announces what’s widely expected to be another cut to its benchmark interest rate.
Fiscal stimulus is also accelerating as confirmed cases of the virus surge past 133,000 globally, with more than 4,900 deaths recorded. Governments have so far pledged more than US$130bil in spending, taxes breaks and other measures.
In the 11 years since the global financial crisis, quantitative easing and super-low interest rates haven’t provided the robust economic boost that central bankers had hoped.
Nonetheless, more policy makers in Asia Pacific are embracing the idea of unconventional steps, including testing the lower bound of rates. New Zealand’s central bank governor said that, if necessary, he’d cut rates into negative territory as a first step. Malaysia and Thailand are also suffering extra economic pain, and could get to that effective zero lower bound more quickly than some peers.
Beyond interest rates, the region’s central banks have been quick to highlight other tools that might address challenges. The Bank of Korea was an early adherent to targeted loan relief for businesses, deploying such measures last month on the same day they kept interest rates unchanged.
A range of policy options must remain on the table for central banks, Chua said,"otherwise this pandemic will turn into a financial and solvency crisis.” - Bloomberg