The People’s Bank of China (PBOC) is committed to offering more support to the Chinese economy as the nation battles the coronavirus epidemic. It says it will lower funding costs and release more liquidity to help boost the economy that’s facing serious challenges.
The Bank’s official, Liu Guogiang, told reporters yesterday that the central bank will inject more liquidity into the economy to drive market interest rates lower.
According to Liu, “China’s monetary policy space is still very sufficient, and the toolbox is also sufficient”. He further stated that the bank is confident to minimize the effect of the epidemic on the economy.
PBOC is also releasing more liquidity to help some banks fight off the challenges facing the economy. Liu said the added liquidity will make sure there are more funds available for small business loans.
Transportation lockdowns affecting the economy
In order to curb the spread of the virus, the Chinese government carried out some transportation lockdowns, which has had significant disruptions in economic activities in the country. As a result, smaller business units are at risk of closure. They are also vulnerable since they have little cash on hand to keep their businesses flowing until this difficult phase is over.
“In the near future, there will be dynamic adjustments in targeted RRR reductions for inclusive financing,” Liu said.
Liu further hinted that the government is looking to give more banks preferential policy support when the government releases more liquidity into the system. In January last year, the Chinese apex bank released about 250 billion yuan as supplementary cash to banks, when there were assessment changes for banks.
The Bank has also reduced its bond rates considerably. And it intends to reduce lending rates, particularly for small and medium firms. It wants to do this by increasing the transmission system of the loan prime rate (LPR).
More monetary and fiscal support expected
Financial analysts are expecting the Chinese government to offer more fiscal and monetary support in the coming weeks. They pointed out that the main problem will be keeping the companies in operation until the demand for their goods and services return.
The Bank will not flood the economy
Liu pointed out that although the central bank is planning to inject liquidity into the economy, it doesn’t plan to flood the economy with excess liquidity. He added that the situation of the economy may get even worse when there are access cash chasing fewer goods. So, the bank is taking precautionary measures to provide the necessary liquidity while keeping the economy balanced.
China has reduced a lot of its key rates to cut the devastating effect of the virus-hit economy. It has urged banks to provide payment relief and cheap loans to organizations and businesses that have suffered the outbreak the most.