China’s central bank set to inject $21.7bn to calm markets
Beijing, China - China unveiled a raft of measures over the weekend to aid companies hit by the coronavirus outbreak and also shore up financial markets, which are bracing for a sell-off when trading re-starts on Monday.
The central bank will supply cash to money markets and banks were told to lend more and not call in loans to companies in Hubei and other affected regions. In addition, night trading sessions for futures were suspended, some share pledge contracts can be extended, and there was a relaxation of assetmanagement rules, which were forcing banks to remove implicit guarantees for trillions of dollars of investments.
The measures announced over the weekend were mostly targeted at the immediate problems facing the economy and markets and aren’t a large increase in stimulus, although that could change if the situation warrants. The viral epidemic has killed hundreds and sickened thousands and will also have a substantial economic impact, with a large part of the nation’s economy shut down at least through the end of this week in an attempt to stem the spread.
The People’s Bank of China (PBOC) will add a net 150bn yuan (US$21.7bn) to money markets on Monday, according to Bloomberg calculations based on 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.
The total injection announced was 1.2tn yuan, the largest single-day addition of its kind in data going back to 2004. However, the net effect is much lower as there are more than 1tn yuan of short-term funds scheduled to mature on 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,” according to Tommy Xie, an economist at Oversea-Chinese Banking Corp.
That Sunday promise of cash followed a joint statement by the central bank, ministries and financial regulators on Saturday, promising to use open market operations, the standing lending facility and other tools to ensure interbank liquidity is sufficient to keep money market rates stable.