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Major central banks bring out big guns in fight vs coronavirus

London - Joint action to keep dollars flowing to support economies; markets cheer move

Leading central banks on Friday announced a new effort to keep dollars pumping through the coronavirus-plagued world economy.
Starting on Monday, certain dollar liquidity operations among the banks will occur daily rather than weekly, according to a joint statement from the Federal Reserve, European Central Bank, Bank of Japan, Bank of England, Bank of Canada and the Swiss National Bank.
The banks first said on March 15 that they were stepping up their cooperation on dollar swap lines, when banks agree to exchange currencies to ensure liquidity in stressed markets.
"To improve the swap lines' effectiveness in providing US dollar funding, these central banks have agreed to increase the frequency of seven-day maturity operations from weekly to daily," the latest statement said.
"These daily operations will commence on Monday, March 23, 2020, and will continue at least through the end of April," it said.
"The swap lines amongst these central banks are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses, both domestically and abroad."
Major central banks, individually and collectively, are intensifying their efforts to inject some calm after crashes on financial markets caused by fears of a virus-induced global recession.
"If this doesn't do the trick, I don't know what will. This is proper coordinated effort to stop dollar funding issues adding to the financial doom loop. Credible move and covers longer periods so there is more certainty in a system which is very short of it," said Salman Ahmed, chief investment strategist at Lombard Odier.
"I think it's a smart move. We have seen that them making swap arrangements more attractive has not really calmed down the market. I think partly the market has got to get used to using these. I think switching to daily frequency will hopefully calm things down. What we've seen is a run on the dollar. This may subside a little bit. But I fear we are getting into a two-class world - central banks able to arrange these swap arrangements and those that aren't," added Ulrich Leuchtman, head of forex strategy at Commerzbank.
World stock markets on Friday showed a measure of recovery.
In Europe, London closed up 0.8 per cent, Frankfurt jumped 3.7 per cent, Paris spiked 5 per cent, Madrid climbed 0.7 per cent and Milan rose 1.7 per cent.
Earlier in Asia, Hong Kong surged 5.1 per cent, Shanghai rose 1.6 per cent and Mumbai leapt 5.8 per cent. Tokyo was closed for a public holiday.
Wall Street, however, was mixed, giving up earlier gains. Near 1710GMT, the Dow Jones was down 0.2 per cent, the S&P 500 dropped 0.6 per cent while the Nasdaq climbed 0.3 per cent.
Gold rebounded, rising 1.7 per cent at $1,495.37 per ounce at  1505GMT. However, bullion has lost over 2 per cent so far this week.
After the central banks' action, the Fed announced new measures to enhance liquidity in state and municipal money markets.
The programme will be administered by the Federal Reserve Bank of Boston and make loans to financial institutions secured by high-quality assets such as tax-free municipal bonds.
The ECB, meanwhile, said eased rules on the capital buffers that banks it supervises must hold to weather crises will free up lenders to issue as much as 1.8 trillion euros ($1.9 trillion), the institution said.
With lower capital requirements, 120 billion euros is "available for banks to absorb losses without triggering any supervisory actions or to potentially finance up to 1.8 trillion euros of loans to households and corporate customers in need of extra liquidity," it added. - AFP, Reuters, AP