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30 March 2020
ECONOMY

China rejoins global monetary easing wave as world shutdowns hit

The move brings the People’s Bank of China closer in line with the stance of its global peers, who have loosened policy dramatically in recent weeks

The central bank called for better coordination of global macro policies, while re-emphasising it will keep liquidity sufficient to help with the real economy and watch out for inflation risks/Bloomberg

by Bloomberg

The People’s Bank of China (PBOC) has slushed the interest rate it charges on loans to banks by the biggest amount since 2015, as the authorities ramp up their response to the worsening economic impact from the coronavirus pandemic.

The Chinese central bank reduced the interest rate on the seven-day reverse repurchase agreements to 2.2 per cent from 2.4 per cent as it injected CNY 50 billion ($7.1 billion) into the banking system. The central bank said this will keep liquidity sufficient to help the real economy.

The first cut to a PBOC policy rate since February 2020 is in line with a pledge by the government to increase support to the economy through increased sales of sovereign debt, as domestic and international demand slumps due to COVID-19 pandemic.

Furthermore, a reduction in the central bank’s main tool to adjust the price of market liquidity also signals coming reductions in its main one-year funding tool, and potentially a corresponding cut to the benchmark deposit rate.

Reductions to policy rates should also be reflected in the main market benchmark of the cost of lending to companies, the loan prime rate.

China will increase its fiscal deficit as a share of gross domestic product, issue special sovereign debt and allow local governments to sell more infrastructure bonds as part of a package to stabilise the economy.

PBOC also called for better coordination of global macro policies, while re-emphasising it will keep liquidity sufficient to help with the real economy and watch out for inflation risks.


RELATED STORIES: People’s Bank of China COVID-19

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