PBoC: Country Where the Virus First Emerged
While discussing the extent to which the coronavirus will affect the global supply chain as China has a say in world trade and how it will direct world growth, the support of the central banks and the incentives of the Chinese authorities have reflected positively in the markets.
The Central Bank of the People’s Republic of China (PBoC) stepped in to dispel the panic atmosphere in the market. The bank, which injected 1.2 trillion yuan of liquidity into the market first, also cut the 7- and 14-day reverse repo interest rates. The bank then provided another 400 billion yuan of liquidity to the market. Finally, PBoC cut 1-year interest by 10 basis points and 5-year interest rate by 5 basis points to 4.05% and 4.75% respectively (Anadolu Ajansi 2020a-g).
PBoC, which frequently applied to its “wait-and-see” policy in this process compared to other countries, reduced the required reserve ratio by 50-100 basis points for some banks that were considered qualified on 13 March. Stating that the discount would provide a total of 550 billion yuan of long-term funding, PBoC gave the message that they would maintain liquidity at the appropriate adequacy. On the other hand, the bank stated, after this announcement, that they would implement a prudential monetary policy and increase flexibility (Bloomberg HT 2020).
Following this decision, the bank left the policy rate unchanged at 4.05% at the meeting held on 20 March and gave the message that the required reserve ratio move was sufficient (investing.com 2020).
On the other hand, on 25 March, the press reported that the central bank officials were considering lowering the benchmark deposit interest rate (Financial Times 2020a, b). Having made the second rate cut decision on April 20, the bank cut its benchmark 1-year basic loan prime rate (LPR) by 20 basis points from 4.05 to 3.85% (China Banking News 2020). On June 2, the bank stated that they faced downside risks for the economy, but that there was room for monetary policy, while leaving the policy rate at 3.85% at its meeting on 22 June. (Forex Live 2020).
10.5