China Adds Cash to Banking System, Keeps Interest Rate Unchanged
A motorist rides past the People’s Bank of China (PBOC) headquarters in Beijing, China. (Photographer: Qilai Shen/Bloomberg)  

China Adds Cash to Banking System, Keeps Interest Rate Unchanged

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(Bloomberg) -- China’s central bank added to its growing list of measures aimed at countering the economic fallout from the spreading virus, injecting $14.3 billion into the financial system.

The People’s Bank of China offered 100 billion yuan via the one-year medium-term lending facility, keeping the rate unchanged at 3.15%. There were no loans coming due Monday. The central bank refrained from injecting liquidity with short-term reverse repurchase agreements for a 20th straight day.

The move follows the PBOC’s widely-expected announcement late Friday that it will trim the amount of cash some lenders must hold in reserve. The cut, which is also effective from Monday, will free up about 550 billion yuan of liquidity in the financial system.

“Some investors are disappointed that the PBOC didn’t cut the interest rate,” said Xing Zhaopeng, a market economist at Australia and New Zealand Banking Group in Shanghai. “It could be taken as a signal from the authorities that they will not lower borrowing costs anytime soon. Beijing will only cut rates when more people are back to work, which may be after mid-April.”

China Adds Cash to Banking System, Keeps Interest Rate Unchanged

China’s 10-year government bond futures erased an earlier gain of as much as 0.32% to trade little changed after the PBOC move. The yield on sovereign notes due in a decade dropped 2 basis points to 2.67%, paring a decline of as much as 4 basis points.

Policymakers around the world are taking steps to shore up confidence in financial markets, which are undergoing a sell-off in many ways unseen seen since the global financial crisis in 2008. In the U.S., the Federal Reserve slashed its main rate to zero on Sunday, matching a record low it was last at in 2015. Central banks in Asia and Europe have also stepped up measures in a bid to keep markets functioning and economies growing.

The Chinese economy is under pressure from the fatal virus which forced a shutdown of many of its major cities -- data Monday showed economic activity contracted more than expected in the first two months of 2020. Measures deployed since early February had initially helped stabilize the country’s markets. But with the coronavirus outbreak spreading across continents, China has less control should it derail global growth.

©2020 Bloomberg L.P.

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