the Central Bank of China lowers short-term rates and injects more liquidity

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Asian exchanges breathe on the second day without local infections in China





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The People’s Bank of China (PBOC) returns to the fray in the fight against the economic effects of the coronavirus. It does lowering their short-term interest rates again, which affects repo operations -operations with repurchase agreement- seven days from 2.4 to 2.2%, and also announces a new injection of liquidity into the economy worth 50,000 million yuan (6,410 million euros). The cases of pneumonia detected in mainland China amount to 82,149 (they have increased by 367 in the last few hours), while outside the country they add up to 640,286.

Chinas central bank has been one of the most swift in trying to tackle the effects of the pandemic on its origins. Now it is moving again when the second economy in the world faces dire economic prospects due to the advance of the disease, the slowdown in production and the first symptoms of a global recession. One of the latest firms to comment on this has been the Japanese Nomura, which estimates that Chinese GDP will have contracted 9% in the annual rate during the first quarter and that throughout this year it will barely advance to 1%.

The measures announced on Monday assume that the Chinese central bank has expanded its line of attack in the face of the weakness of the economy of its country and that of the rest of the world. At the same time, from the entity they influence the message that the PBOC is not using “its bullets at once”, but still “has a lot of room in monetary policy”. The Chinese issuer has also demanded in recent hours a greater coordination of macro policies at the global level and has influenced that will maintain sufficient liquidity to support the real economy while monitoring inflation risks.

What is already the first downward movement in rates by the body since February, and after the announcements of other large central banks around the world along the same lines, comes after the Communist Party secured last week which will increase its support for the Asian giant’s economy with new debt issues.

These are liquidity exchange operations with banks, insurers and investment funds in exchange for assets that they use as collateral such as, for example, Treasury bonds.

The ax to the Chinese economy of the Covid-29

In 2020, the impact of the Covid-19 crisis at the national and global level could significantly weigh down Chinas economic growth, warn from Singular Bank. “Specifically, the average forecast for 17 study services projects an increase in its GDP of 2.9% per year, its worst record since 1976, when it contracted 1.6% annually in an environment marked by its Cultural Revolution and the death of Mao Zedong (founder of the People’s Republic of China), “they explain.

The containment measures and the stoppage of economic activity have significantly impacted in key sectors such as industry, retail sales and business investment, among others. Industrial production sank 13.5% yoy in February, retail sales plummeted by 20.5% year-on-year (when on average they have been growing at 9.6% annually since 2015) and investment in fixed assets contracted by 25.3% year-on-year, accentuating the slowdown it showed since start of the trade war with the US in March 2018.

“As the world battles the coronavirus pandemic, China has already made great strides to mitigate the effect of the virus on its population and economy. Although the country is not yet out of the woods, we expect Chinas economy to recover in the second half of this year, which could be another positive sign for the Chinese equity market boosting Chinas class A shares. ” point Christiaan Tuntono, senior economist from the Asia Pacific region and Anthony Wong, CFA and fund manager of the fund manager Allianz Global Investors.

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