The Bank for international settlements warned about excessive enthusiasm of markets regarding anti-crisis measures
LONDON (Reuters) – the Bank for international settlements (BIS) urged Central banks to tell the world about how they plan to phase out measures to support economies after the epidemic of the coronavirus, and also warned that the financial markets are probably too complacent appreciated the magnitude of the crisis.
The Bank said Tuesday in its annual report that the unprecedented “sudden stop” of the pandemic, turns from liquidity problems in a more fundamental threat to the solvency of firms.
“The pandemic is the defining event for a generation,” – said General Director of the BIS, Agustin Carstens.
The long-term viability of many companies will be tested during the next phase of the crisis, the report says, with the strength of the recovery will depend on the evolution of the pandemic and what damage it will cause.
“Central banks are fully aware of the challenges they face, as prospects for the global economy remain very uncertain. Some of these problems are beyond their powers,” added Carstens.
“Stock prices and corporate spreads in particular seems to be separated from the weaker real economy,” and “fundamental fiscal challenges remain”, the Bank said.
A wave of downgrading of credit ratings has already begun – only S&P Global has taken about 2,000 negative rating actions since the start of the crisis – and there are fears that the losses could lead to greater defaults.
Carstens also added that before the situation will return to normal and Central banks will proceed with the cancellation of support measures, regulators should pave the way.
The world’s Central banks this year has reduced the interest rate approximately 150 times, according to estimates from BofA, and in the global economy has invested a total of $18 trillion of monetary and fiscal aid.
“Exit strategy is a complex discussion, however, it is necessary to consider,” said Carstens Reuters, adding that the market should know that additional incentives will not exist forever.
However, governments will have to continue to provide assistance, and continues to assume that inflation is likely to be abandoned be heated in the financial system with additional funds.
A more disturbing scenario would be a repetition of the situation after the second world war, if long the pandemic will leave a much greater mark in the world economy and in the political sphere.
“In this case, the national debt would be much higher, and the share of state sector in the economy – much more, while globalization is strongly compelled to recede”, – the Bank said.
(Mark Jones, translated by Olga Deviatiarov. Editor Dmitry Antonov)