China central bank to inject $174 bn in virus-hit markets
BEIJING/HONG KONG: Chinese policymakers prepared to shore up the financial system and capital markets, which are bracing for a sell-off on Monday when markets re-open.
The People’s Bank of China (PBOC) and other regulators announced a slew of targeted measures over the weekend aimed at calming financial markets and helping companies, banks and individuals hurt by the viral pneumonia outbreak. The central bank will supply 1.2 trillion yuan ($174 billion) to money markets on Monday, according to a statement on Sunday.
The money will be supplied using reverse repurchase agreements to ensure liquidity is “reasonably ample” during the outbreak, according to the PBOC, which did not say the tenor of the agreements or the interest rate.
This will be the largest singleday addition of its kind in data going back to 2004, and implies a net injection of 150 billion yuan, as more than 1 trillion yuan of short-term funds were scheduled to mature on Monday. The economic impact of the disease outbreak is still unknown, although the effects of shutting down a large proportion of the nation’s economy for an extra week in an attempt to slow the virus’ spread will be substantial.
“The central bank should be doing this to make sure the stock investors don’t panic too much as the market reopens,” said Tommy Xie, an economist at Oversea-chinese Banking Corp., adding it was a surprise they announced it before Monday. “The amount of the net injection isn’t huge. The PBOC may want to retain some flexibility, which means it can add more liquidity in the rest of the week if the sentiment is too bad.”
That PBOC announcement follows a joint statement with other ministries and financial regulators on Saturday, which promised to use open market operations, the standing lending facility and other tools to ensure interbank liquidity is sufficient to keep money market rates stable.
The PBOC urged banks to increase lending to the whole economy, and said it will give banks 300 billion yuan in relending to help them provide more money to a list of affected companies.
Banks were told they shouldn’t withdraw loans from firms affected by the virus, especially from smaller ones.
Banks should also consider rolling over loans or cutting interest rates to help affected companies, and regulators will allow those firms to delay reporting their results for 2019 and the first quarter of 2020.
The new measures follow the announcement last week that China’s biggest banks will lower interest rates for firms in Hubei, the center of the outbreak. In the Saturday statement, financial institutions were told to maintain the pace of overall credit expansion and continue to lower borrowing costs across China, especially to manufacturers, and to small and private firms.