Globally, central banks stepped up their emergency efforts to calm financial markets and support their economies in a historic week of market losses as more of the world shuts down to contain the coronavirus outbreak.

Meeting into their nights, policy makers at the Federal Reserve launched a programme to support money market mutual funds, hours after those at the European Central Bank announced a €750 billion ($820 billion) bond-buying initiative.

The Reserve Bank of Australia cut its benchmark interest rate by 25 basis points to 0.25% Thursday and ventured into quantitative easing with plans to purchase government bonds. Japan and South Korea also boosted bond-buying.

Central bankers are scrambling to address liquidity shortages, financial stability risks and crushed growth prospects as borders are shuttered, whole cities go into lockdown and mass gatherings are increasingly banned to contain the virus. So far the policy action isn’t doing much to calm markets, with most stocks sliding in volatile trading on Thursday.

“Policy makers are now responding to clear signs of dislocation across financial markets more than the direct hit to the economy," said Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings in Singapore. The central bank moves are “off the charts of what anyone thought possible just a few weeks ago."

The Philippine central bank cut its benchmark rate by a bigger-than-usual 50 basis points on Thursday, while Indonesia and Taiwan followed with 25-point reductions each. South Africa is also expected to ease policy later in the day.

The Fed has already slashed interest rates in two emergency moves, triggering similar action across the globe from New Zealand to Canada.

Some of central bank bond programmes announced on Wednesday and Thursday include:

Reserve Bank of Australia governor Philip Lowe said on Thursday the financial market volatility has led to an impaired government bond market and the authorities need to act.

“The primary response to the virus is to manage the health of the population, but other arms of policy, including monetary and fiscal policy, play an important role in reducing the economic and financial disruption resulting from the virus," he said.

A global liquidity crunch has made matters worse for investors and exacerbated market moves. Trading desks continue to speak of the mentality of “selling everything" except the US dollar, with huge liquidations and de-leveraging taking place everywhere.

The demand for dollars, together with the plunge in oil prices, sent currencies worldwide into a tailspin. So much so that Russia’s central bank said it will begin additional foreign currency sales if the price of Urals crude is below $25 a barrel, a level it has already reached. And Norway’s Norges Bank said it’s ready to intervene in currency markets for the first time in more than two decades.

Fiscal Push

In New Zealand, where an emergency rate cut isn’t being efficiently transmitted, the central bank is facing increasing pressure to accelerate plans for large-scale asset purchases.

With central banks quickly using up their available ammunition, governments are stepping up their action too, invoking war-time references as they shake off budgetary restraints. The global tally of fiscal support and bank guarantees stands at about $1.9 trillion already.

“Usually it is monetary easing that provides the initial line of defense in responding to an economic slowdown," Bruce Kasman, chief economist at JPMorgan Securities LLC, said in a research note Wednesday. “The constraints facing central banks and the flexibility provided to fiscal authorities in an extremely low interest rate environment suggest that fiscal easing will be delivered earlier in this episode."

Many central bankers are signalling they’ll do even more as the prospect of a global recession becomes more certain. India’s central bank said it stands ready to take more steps to contain bond yields if needed, according to a person with knowledge of the matter, after the Reserve Bank of India’s (RBI’s) latest move to purchase sovereign notes maturing by 2025.

Economists at Goldman Sachs Group Inc. and Morgan Stanley are among those seeing a downturn already underway as more Wall Street banks slash forecasts.

Strained Chinese economic growth, “more widespread and draconian containment measures to deal with the spread, the emergence of strain in credit markets, and sharp tightening of financial conditions have caused us to revise down substantially our global growth forecasts in the first half of the year," Torsten Slok, chief economist at Deutsche Bank AG, wrote in a research note on Wednesday.bloomberg

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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