China cuts medium term loan rate to support coronavirus-hit economy
- The People’s Bank of China offered 200 billion yuan (US$28.6 billion) of one-year medium-term loans on Monday, lowering the rate by 10 basis points to 3.15 per cent
- Last week, China vowed it would meet its 2020 economic targets and allowed local governments to issue more debt in the near term to aid growth
China provided medium-term funding to banks and cut the interest rate it charges for the money as officials sought to cushion the economy from the coronavirus outbreak.
The central bank also added 100 billion yuan of funds with seven-day reverse repurchase agreements. Some 1 trillion yuan (US$143 billion) of reverse repos are due Monday, resulting in a net 700 billion yuan (US$100 billion) withdrawal.
“The injection is relatively small,” said Becky Liu, head of China macro strategy at Standard Chartered Bank, adding the operation will reduce incentives to chase Chinese government and policy bank bonds. “It means the PBOC does not intend to further lower front-end rates from here. I think rates will stay range bound until further catalysts are there.”
Futures on China’s 10-year government bonds reversed gains after the operation, falling as much as 0.11 per cent. The CSI 300 Index of shares rose as much as 0.9 per cent, surpassing its 4,003.9-point close from January 23, the last trading day before the Lunar New Year break.