Policymakers bid to keep markets liquid and calm

Business | Agencies and Avery Chen 20 Mar 2020

Policymakers around the world have acted independently to fight against the economic fallout of coronavirus pandemic, with the bulk of their measures aimed at providing dollar liquidity and calming the bond and equity markets.

The US Federal Reserve, which has slashed rates twice and pledged to buy more bonds, is weighing whether to expand the scope of its interventions in financial markets being battered by concerns over the coronavirus.

The European Central Bank launched a 750 billion euro (HK$6.26 trillion) debt-buying program to keep borrowing costs in check as countries prepare to increase spending to counter the impact of the coronavirus. The Bank of Japan yesterday offered to buy 1 trillion yen (HK$70.59 billion) of bonds in an unscheduled operation and followed up with offers to buy more.

Hours later, the Reserve Bank of Australia said it would buy bonds across the yield curve to "address market dislocations." It also took a leaf from the BOJ by announcing it would target a level of around 0.25 percent for the three-year bond yield.

However, the monetary measures have weakened major currencies, with gold joining global equities in falling as investors sought to hoard the US dollar in unstable market conditions.

The US dollar gained against the British pound to its highest level since 1985, last up 0.8 percent at US$1.1535 per pound. The Australian dollar fell as much 4.6 percent to 55.10 US cents, its weakest since 2002.

The won also dropped more than 4 percent, prompting policymakers to warn that the move was excessive. The Indonesian rupiah sank to its weakest since the Asian financial crisis of 1998. The offshore yuan fell 738 points to 7.1209 per dollar as of last night. Gold prices once fell more than 1 percent.

Meanwhile, US stocks opened lower with the Dow Jones Industrial Average down more than 3 percent.

Earlier, stocks fell in Europe and across most of Asia. In Hong Kong, the Hang Seng index ended 582 points lower at 21,709, the lowest since February 2016. The price-to-book ratio of the benchmark fell to 0.93 times, even worse than during the Asian financial crisis and the 2008 financial crisis. Mainland developers with massive US dollar bonds slumped, with China Evergrande (3333) falling 7.71 percent.

In other news, the one-month Hibor, which is linked to the mortgage rate, rose for the fifth straight day to 1.79375 percent on tight liquidity.

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