NY- China’s central bank injected liquidity into the financial system through open market operations for the first time since February 17, ending the longest hiatus since December 2018. It also lowered loan interest rates.
The People’s Bank of China will inject 50 billion yuan ($ 7.1 billion) into the banking system through 7-day reverse buyback agreements, according to a statement. It also reduced the interest rate from 2.4 to 2.2 percent.
The move comes after China’s top leaders said Beijing is preparing a larger-scale stimulus to counter the economic consequences of the coronavirus. The PBOC again emphasized that it will maintain sufficient liquidity to help the real economy while monitoring inflation risks.
“There is no room for interbank liquidity conditions to tighten and looser monetary policy will be needed to deal with the likely material increase in government bond issues,” said Becky Liu, head of China’s macro strategy at Standard Chartered. Plc.
The quarter’s liquidity requirements and tax payment deadlines were also factors, he said. “Injecting 7-day money into the system to meet those short-term needs is appropriate,” he said. The offshore yuan weakened
Slightly, while government 10-year bond futures rose briefly before declining.
With production paralyzed by factory closings and transportation restrictions this quarter, China’s economy is now threatened by a collapse in external demand due to the spread of the deadly disease worldwide. That is causing a change on the part of policy makers who have so far stuck to a much more modest stimulus plan than those implemented by their global counterparts.
The PBOC has previously said that market liquidity is sufficient. Earlier this month, Beijing added 100 billion yuan of liquidity to the interbank market with its medium-term line of credit. It also reduced the amount of cash that lenders need to reserve as reserves, releasing 550 billion yuan in long-term funds.
– .
