Deloitte: The effects of the COVID-19 pandemic on financial markets

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Bogdan Tudorache

The International Monetary Fund (IMF) has announced that it is making available to emerging and low-income states $50 billion through its rapid financing facility against the backdrop of the coronavirus pandemic. For low-income countries, the IMF will provide $10 billion in emergency funding, says Alexandra Smedoiu, Fiscal Services Partner, Deloitte Romania.

At the same time, the European Commission announces that it will make available to the Member States a first package of 7.5 billion euro and a total of 25 billion euro to support the economies suffering from the pandemic.

The Organization for Economic Co-operation and Development also suggests that central banks should send encouraging signals to mitigate turbulence in financial markets, indicating that they should be prepared to further relax monetary policy and provide liquidity to banks, if they will find it necessary.

“In the field of financial services, prevention resides in establishing a business continuity plan as detailed and applied for situations of this kind. Some companies may not have such a plan already approved and tested, so the situation can be complicated.

Goldman Sachs investment bank estimates that European banks could lose 30 billion euro in profits over the next three years due to the current crisis.

In Romania, the supervisory authorities also asked the financial institutions (banks, insurance companies, etc.) to update their business continuity plans to the new international financial context. Moreover, institutions operating in the financial and banking industry are required by law to implement such plans, which they will periodically test,” says Smedoiu.

“At the local level, we must also take into account the fact that, during times of turmoil, investors withdraw from emerging markets and take refuge in stable assets, such as gold or bonds. In these conditions, we can witness, in the following period, a depreciation of the leu against the euro and a decrease of quotations on the Bucharest Stock Exchange (BVB). Their magnitude will depend to a large extent on the degree of panic.

Already, both on the stock market and on the foreign exchange market, the effects of developments in international financial markets are being felt, which, increasingly, are compared with those of the last financial crisis of ten years ago. An encouraging aspect, however, may be the fact that many of the investors in the international financial market have now gone through the previous financial crisis and are expected to be more cautious in making emotional decisions.”

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