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SBP ready to battle any market shocks amid coronavirus crisis

SBP ready to battle any market shocks amid coronavirus crisis

KARACHI: The State Bank of Pakistan (SBP) has said it is ready to take action to support financial markets during COVID-19 pandemic outbreak – a mysterious pneumonia-like disease caused by the novel coronavirus that has affected nearly 150 countries so far.

The current market volatility in Pakistan is externally driven and the strengthening in the fundamentals of Pakistan’s economy that drove the improvement in Pakistan markets before the outbreak of coronavirus remains intact,” SBP Governor Reza Baqir said in an email to media.

The central bank ‘is monitoring the situation closely and remains ready to take any actions needed to address disorderly market conditions’, he added.

On Friday, the central bank of Pakistan helped the rupee advance 0.1 per cent after a four-day decline, according to people familiar with the matter.

Global central banks stepped up their crisis-fighting measures last week in a campaign to keep markets functioning and economies growing, including interest-rate cuts, asset purchases, currency interventions and liquidity injections.

The global pandemic, which has led to a sell-off in the country’s bond, has also pushed Pakistan’s net sales of $772 million in short-term rupee debt this month after eight successive months of purchases that totaled $3.1 billion, Bloomberg reported on Sunday.

So far Pakistan has reported 53 COVID-19 cases – 35 in Sindh, 10 in Balochistan, 4 in Islamabad, 3 in Gilgit-Baltistan and 1 in Punjab.

The country’s economy is stabilising under a $6 billion bailout programme by the International Monetary Fund (IMF) after a deficit blowout. However, to contain the damage, the nation doubled its interest rate and devalued its currency by half since late 2017.

High interest rates encouraged investors to pile into the nation’s local-currency bonds like never before but the latest global turmoil started an outflow.

“The selling “shows that this money can be fickle and can move based on concerns other than Pakistan,” said Abdul Kadir Hussain, head of fixed-income asset management at Arqaam Capital Ltd. in Dubai that handles assets worth $450 million.

“It’s not necessarily a bad thing to have foreign interest in the local bond market, it just means that the central bank has to be very nimble and be prepared for periods of volatility like we are currently experiencing,” Hussain said, adding that if investors are able to enter and exit seamlessly in this period of volatility without major moves in the rupee, it will only increase investor confidence in the viability and depth of the market for foreign investors.

Commenting on how the central bank plans on tackling disorderly market conditions, Baqir said: “The central bank “is committed to a market-based exchange rate and intervenes when necessary to address disorderly market conditions.”