JAKARTa (TheInsiderStoris) – People’s Bank of China (PBoC) pumped cash RMB50 billion (US$21.18 billion) into the banking system through seven-day reverse repos to maintain liquidity, said the central bank today (06/05). The Bank offered an interest rate of 2.2 percent for the repos.
The PBoC has drained a net RMB450 billion, the biggest weekly amount since mid-February, compared with RMB670 billion of injection a week earlier. Since the COVID-19 outbreak, China has increased policy support on the monetary and fiscal fronts to help businesses.
It said, the second world largest economy will pursue a prudent monetary policy, use a variety of tools including reserve requirement ratio cuts, interest rate reductions and re-lending to enable money supply and aggregate financing to grow at notably higher rates than last year. Last April, the central bank had cut its one-year loan prime rate (LPR) to 3.85 percent from initially 4.05 percent.
PBoC also cut its five-year rate to 4.65 percent from 4.75 percent. This is the second time the policymakers has cut its rate so far this year. At the same day, China also reported its first negative year-on-year quarterly growth since the 1980s.
According to the national bureau of statistics, in the first quarter (1Q) of 2020, gross domestic product shrank to 6.8 percent compared with the same period of last year. In the same quarter, fiscal revenues also fell 14.3 percent from a year earlier to RMB4.598 trillion, attributing the decline to the COVID-19 outbreak and tax relief offered.
China cut the one-year LPR by 20 basis points (bps), which is the last part of the “set” of rate cuts, including recent 20bps cuts in the 7D reverse repo and one-year medium lending facility. These policy rates, namely, the 7D reverse repo, one-year medium lending facility (MLF) and one-year LPR, are now at 2.2 percent, 2.95 percent, and 3.85 percent, respectively.
The PBoC has voiced that it does not agree with an ultra-low interest rate policy. The 7D reverse repo has already gone beyond its previous historical low of 2.25 percent during 2016, and the same is true for the one-year MLF, which was at 3 percent during 2016. The one-year LPR is a new policy rate that replaces the benchmark lending rate.
By the end of 2020, ING rated, the Bank’ policy interest rates are projected at 7D reverse repo 1.5 percent, one-year MLF 2.45 percent, one-year LPR 3.35 percent, RRR for the smallest banks 3.5 percent, and RRR for the biggest banks 9.5 percent.
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