China’s central bank would step up support for the economy to cushion the blow from the 2019 novel coronavirus outbreak, but activity is expected to recover once the virus is brought under control, one of its deputy governors said yesterday.
The People’s Bank of China (PBOC) is closely watching the effects of the outbreak on the world’s second-largest economy and is preparing policy tools to offset the pressure, People’s Bank of China Deputy Governor Pan Gongsheng (潘功勝) told a news conference.
“In terms of monetary policy, the next step is to strengthen countercyclical adjustments, maintain reasonable and ample liquidity, and provide a sound monetary and financial environment for the real economy,” Pan said. “In the context of the outbreak and the downward pressure on the economy, it is more important to maintain economic growth.”
Photo: EPA-EFE
Widespread travel and public health restrictions are taking an increasing toll on tourism, restaurants and other parts of the services sector, while many factories have suspended operations until next week or longer, as authorities try to contain the virus’ spread.
Still, the death toll from the epidemic rose to 636 as of the end of Thursday, with 31,161 people confirmed to be infected.
Chinese policymakers are preparing measures, including more fiscal spending and interest rate cuts, amid expectations that the outbreak would have devastating effects on first-quarter growth, sources said.
Analysts have said that growth could decelerate by 2 percentage points or more from 6 percent in the fourth quarter, with business disruptions increasingly spilling over into the global economy.
However, they have said that business and consumer activity could rebound sharply if the outbreak peaks soon, much like the pattern during the SARS epidemic in 2003.
Pan reiterated that China has sufficient policy tools to cope with the pressure, saying that the central bank has more room to support growth than in other major economies.
The bank would use tools such as targeted reserve requirement cuts, relending and rediscounting to support key sectors, he said.
The bank’s liquidity injections have helped lower market interest rates, which could affect China’s key lending rate: the loan prime rate (LPR), when it is next set on Feb. 20, Pan said.
The cost of special relending, at 300 billion yuan (US$42.95 billion), from the PBOC to commercial banks is relatively low, Pan added.
The central bank has also told banks to cap rates on loans for selected firms at 3.15 percent, 1 percentage point lower than the latest LPR.
Earlier this week, the PBOC injected 1.7 trillion yuan via reverse requirement cuts to shore up confidence and cut some key money market interest rates.
The government would also cut taxes and fees, Chinese Deputy Minister of Finance Yu Weiping (余蔚平) said at the news conference.
Weighed down by weak demand globally and US-China trade tensions, China’s economic growth last year slowed to 6.1 percent, the weakest in nearly three decades.
Beijing needs growth of about 5.6 percent this year to fulfil its goal of doubling GDP and incomes over the past decade.
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