WASHINGTON: The International Monetary Fund (IMF) has reminded governments that foreign exchange intervention may be necessary if the corona crisis causes markets to behave disorderly.

On Tuesday afternoon, the IMF suggested a number of policy measures that governments across the globe could take to protect their economies from the adverse effects of the coronavirus, which has already infected more than 200,000 people and caused over 8,000 deaths. The crisis has also stirred the fears of an economic meltdown.

“Exchange rate flexibility can offset external shocks, but foreign exchange intervention may be necessary if market conditions become disorderly,” the IMF suggests. “In crisis or near-crisis situations, capital flow measures may need to be deployed for a temporary period.”

The fund urges central banks to provide liquidity to support market functioning and ease stresses in key funding markets, through open market operations, expanded term lending, and other measures such as outright purchases and repo facilities.

“Monetary easing will support demand and confidence while reducing borrowing costs for households and firms,” the IMF argues. “In addition to rate cuts, stimulus can be provided through forward guidance about the expected path of monetary policy, and expansion of asset purchases.”

The IMF suggests that such temporary targeted measures will support sectors that have been hit hardest and underlines the need for more targeted support for certain assets.

The Washington-based lender urges emerging and developing economies to balance cushioning growth with tackling external pressures, including commodity price shocks and capital flow reversals.

The instructions emphasize the need for governments to provide sizable support for affected people and firms. “Wage subsidies for businesses affected by shutdowns can help prevent cascading bankruptcies and massive layoffs that will have lasting effects for future recovery and negative impact on aggregate demand,” the fund argues.

“Cash transfers to low-income households can support consumption and preserve minimum living standards.”

The IMF argues that broad-based fiscal stimulus will help support aggregate demand and accelerating implementation discretionary measures can provide timely support.

The fund urges major economies and international financial institutions to provide concessional financing from to low-income countries, noting that these countries are already buffeted by multiple shocks on external demand, terms-of-trade and financing conditions.

Published in Dawn, March 19th, 2020