China offers low-cost loans to banks to help fund small businesses, shore up economy
- Central bank introduces new lending facility to boost liquidity ahead of interest rate increase in the United States
- The People’s Bank of China also extends banks’ credit line by US$14.5 billion
China’s central bank has made fresh moves to release more money into the financial system as Beijing looks to shore up the economy amid a deepening trade war with the United States.
The People’s Bank of China (PBOC) said in a statement on Wednesday evening that it had launched a new liquidity mechanism known as the “targeted medium-term lending facility”, through which banks can borrow cheaply and then make those funds available to small businesses and private firms.
The move is aimed at “improving financing support for small businesses, micro businesses and private enterprises”, the PBOC said.
All loans agreed under the new mechanism will be provided at an annual interest rate of 3.15 per cent – 15 basis points below than the standard rate – and banks will have up to three years to repay them, the PBOC said.
Besides the low-cost loans, the central bank said it would also extend its credit line to the nation’s lenders by 100 billion yuan (US$14.5 billion) to ensure sufficient funds were available for small businesses.
The PBOC’s announcement came just hours ahead of an interest rate increase in the US. The US Federal Reserve raised its benchmark rate for banks by 25 basis points to between 2.25 and 2.5 per cent.
Compared to other moves by the PBOC to increase liquidity, such as cutting interest rates and reducing reserve requirements, the launch of the new loan facility is a more targeted measure that suggests it is unwilling to loosen its monetary policy too far.