China slashes fee, pumps US$7 billion into industry to counter COVID-19 impact
30 March, 2020
China's central bank on Monday (Mar 30) cut an interest rate on loans to banks by the major margin found in five years and injected 50 billion yuan (US$7 billion) into the financial system to greatly help the world's second-largest market weather the coronavirus affect.
The People's Lender of China (PBoC) said it launched a 50-billion-yuan reverse repurchase procedure on Mon and lowered the seven-day reverse repurchase level from 2.40 % to 2.20 per cent.
It had been the "largest trim since 2015 and takes the 7-evening reverse repo fee to its lowest on record", said Julian Evans-Pritchard, senior China economist in Capital Economics.
"By offering cash at a lesser rate, the PBoC should be able to keep market interbank costs low even as the liquidity from the RRR (reserve need ratio) cuts is absorbed by the banking system," he said, referring to an earlier lowering of the amount of cash loan providers must retain in reserve.
The deadly pathogen has claimed almost 40,000 lives worldwide, hitting businesses and consumers, and its own global spread has dampened hope of an instant recovery in export-dependent China, where in fact the pandemic first erupted in December.
The latest maneuver comes as governments and central banks all over the world ease monetary policy and unveil titanic stimulus measures worth around $5 trillion to counter the economic impact of the pandemic, which forecasters warn may cause a deep recession.
The Communist Party's decision-making politburo also known as last Friday for stronger counter-cyclical policy measures and a step-up in stimulus.
The politburo said where appropriate, the fiscal deficit ratio ought to be raised, special treasury bonds should be issued, and that there must be an increased quota of local government special bond issuance, China's official Xinhua Media Agency reported.
Effective loan rates also needs to be guided downwards, "maintaining reasonable and enough liquidity", officials added.
Monday's move appears to have had little effect on industry sentiment, with Shanghai's key stock index about one % low in the afternoon.
As COVID-19 ravages the global overall economy, analysts have cut expansion forecasts for China, that was the first to see the results from containment measures targeted at halting its spread.
S&P Global Ratings said it has the revised economic progress estimate for China found in 2020 is currently almost half it has the pre-outbreak growth assumption of 5.7 percent.
ANZ Research economists Xing Zhaopeng and Raymond Yeung said in a note that the PBoC's level cut "is supposed to lessen Chinese corporates? financing costs".
They expect it'll be followed by cuts in the medium term lending facility rates and loan prime rate.
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