Amidst the Covid-19 pandemic, as governments scramble to save economics, People’s Bank of China frees up $56 billion (400 billion yuan) as it plans to lend the sum of money to businesses that were affected by the on-going crisis. This move comes as China, world’s second largest economy, finds its growth rate to be the lowest since 1976, the year of the cultural revolution.
This move was aimed with a goal- to boost efficiency and supply an amount of cash that can be held by small and mid-sized banks, that usually operate at the province levels. This encourages lending to small, mid-size firms and smaller banks through liquidity injection and regulatory adjustment.
The PBOC also slacked the interest rate that it pays to the excess reserve at the central bank from 0.72% to 0.35, thus lowering the interest rates on short-term loans between banks. The reserved ratio which is the portion of reservable liabilities that commercial banks hold on to was cut in two parts, on April 15th and May 15th, which has been a tactic to gradually reduce the cost of borrowing in China and help ease the economic slowdown. However, Iris Pang at ING Bank NV in Hong Kong expresses concern by quoting: “I doubt the effectiveness — it’s obvious that the PBOC wants to release liquidity but doesn’t want to release too much”.