How Covid19 is Changing the World’s Financial Market?
Posted On July 29, 2020
Without a doubt, Covid19 turns from an outbreak which escalated real quick into a global pandemic. It caused unforeseen health and human crisis. The necessary measures in containing the virus triggered economic turmoil in different nations around the world. At this point, no one still knows when a vaccine to the virus will become available. But one thing is for sure, the financial market is significantly impacted by its presence.
According to the recent Global Financial Stability Report, it revealed that the financial system already took its toll of the pandemic. Since the outbreak of the pandemic, the price of risk assets has seen a sharp decline. What’s worse of recent selloff is, risk assets have suffered half or even more of declines that they’ve suffered back in years 2008 and 2009.
Let us be factual that market volatility spikes and in some cases, it has gone to levels that were last reported during global financial crisis. With the volatility taking over, it significantly deteriorated market liquidity which includes the traditional markets.
So in an effort to maintain the global financial system’s stability while supporting world’s economy at the same time, central banks across the world have laid out its first line of defense. What was done was, easing monetary policy by means of cutting policy rates. Also, half of central banks in the lower income countries as well as emerging markets need to cut policy rates too.
The impacts of rate cuts would be reinforced via the guidance of the central banks regarding future path of monetary policy as well as the expanded asset purchase programs.
Not only that, central banks created additional liquidity to aid the financial system which includes opening market operations. Then after that, central banks agreed to improve the provisions of the US dollar liquidity that’s done via swap line arrangements.
Last but not the least, central banks started reactivating programs that are used throughout global financial crisis and introduced wide range of new broad-based programs that include to buy riskier assets like corporate bonds. By using as “buyers of last resort” effectively in such markets and assisting to contain the upward pressure towards cost of credit, central banks were able to ensure that both firms and households will still have their access to credit at a more affordable rate. As of this writing, central banks made an announcement of expanding liquidity provisions via asset purchases and loans.
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