China cuts rates, injects liquidity as stocks, commodities & yuan plunge

China’s central bank took its first concrete step to cushion the economy and plunging markets from the blow of a spreading new virus, providing short-term funding to banks and cutting the interest rate it charges for the money.

The People’s Bank of China added a net 150 billion yuan ($21.4 billion) of funds on Monday using seven-day and 14-day reverse repurchase agreements. The rate for both was cut by 10 basis points, driving down the cost of the money to “ensure ample liquidity during the special period of virus control,” it said in a statement. PBOC adviser Ma Jun indicated he expects further rate cuts later in the month.

The cash injection was part of a raft of supportive measures announced over the weekend to soften a market sell-off and help firms affected by the disease outbreak and extended holiday. While the government said Monday that it’s confident it can minimise the economic impact of the Coronavirus, the central bank and regulators may well continue to step up support as the effects of the epidemic become clearer.


“It’s a tricky moment, and the central bank needs to wait to see how it plays out,” said Nie Wen, an economist at Huabao Trust Co. in Shanghai. “It has to make sure the economy can grow steadily while leaving policy room for the future — the next week or two will be crucial for them to decide whether the economic shocks would be temporary or extend over the mid-term.”