China’s central bank yesterday cut an interest rate on loans to banks by the largest margin in five years and injected 50 billion yuan (US$7 billion) into the financial system to help the world’s second-largest economy weather the coronavirus impact.
The People’s Bank of China (PBOC) said on its Web site that it launched a 50 billion yuan reverse repurchase operation yesterday and lowered the seven-day reverse repurchase rate from 2.40 percent to 2.20 percent. It did not give a reason for the moves.
It was the “largest cut since 2015 and takes the seven-day reverse repo rate to its lowest on record,” said Julian Evans-Pritchard, senior China economist at Capital Economics Ltd in Singapore.
Photo: AP
“By offering funds at a lower rate, the PBOC will be able to keep market interbank rates low even as the liquidity from the RRR [reserve requirement ratio] cuts is absorbed by the banking system,” he said, referring to an earlier lowering of the amount of cash lenders must keep in reserve.
COVID-19’s global spread has dampened hope of a quick recovery in export-dependent China.
The latest move comes as governments and central banks around the world ease monetary policy and unveil titanic stimulus measures worth about US$5 trillion to counter the economic impact of the pandemic, which forecasters warn will cause a deep recession.
The Chinese Communist Party politburo on Friday called for stronger counter-cyclical policy measures and a step-up in stimulus.
The politburo said where appropriate, the fiscal deficit ratio should be raised, special Treasury bonds should be issued, and that there should be an increased quota of local government special bond issuance, Xinhua news agency reported.
Effective loan rates should also be guided down, “maintaining reasonable and sufficient liquidity,” officials added.
Yesterday’s move appears to have had little impact on market sentiment, with Shanghai’s key stock index about 1 percent lower in the afternoon.
As COVID-19 ravages the global economy, analysts have cut growth forecasts for China, which was the first to see the effects from containment measures.
S&P Global Ratings said its revised economic growth estimate for China for this year is now almost half its pre-outbreak growth assumption of 5.7 percent.
Australia and New Zealand Banking Group economists Xing Zhaopeng (邢兆鵬) and Raymond Yeung (楊宇霆) said in a note that the rate cut “is intended to lower Chinese corporates’ funding costs.”
They expect it would be followed by cuts in the medium-term lending facility rates and loan prime rate.
Ma Jun (馬駿), a central bank adviser, told state media that China still has ample room for monetary policy adjustment and the rate decision took into consideration the return of Chinese companies to work, the global virus situation and a deterioration in the external economic environment.
Additional reporting by Reuters
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