The Chinese central bank stimulates the economy with the largest injection in 3 years
Three year Chinese Economy Revival
Beijing, Jan 26 (EFECOM) .- The People’s Bank of China (central) sought today to revive its slow economy with the largest injection of daily liquidity through market operations in three years, 440 billion yuan (67,200 million). million dollars, 61,800 million euros).
This measure, added to the three injections made since last January 19, caused an earthquake in the volatile parks of the country: the Shanghai Stock Exchange sank today by 6.42% at the close and Shenzhen’s 6.96%. %, while Hong Kong, a more mature and stable market, fell 2.48%.
Some analysts say that the large volume of liquidity introduced with the series of injections undertaken by the Chinese issuer in the last week has an effect similar to that of a cut in the cash ratios – the reserves that banks are obliged not to provide – .
The central bank of the second world economy channeled cash today through two types of reverse repurchase agreements (also known as “repos”), an instrument through which securities are sold conditioned on an agreement to repurchase them at a later date.
In particular, granted 360,000 million yuan (55,000 million dollars, 50,600 million euros) in “repos” to twenty-eight days and another 80,000 million yuan (12,200 million dollars, 11,200 million euros) in “repos” to seven days .
The “repos” to twenty-eight days have an interest rate of 2.6% and the rate of those who expire a week is at 2.25%, specified the central bank.
Some of these funds cover short-term loans offered the week that had already expired, but still represent an additional entry of 190,000 million yuan (29,000 million dollars, 26,700 million euros) in the financial system.
Since January 19 it became known that the growth of China’s gross domestic product (GDP) in 2015 was 6.9%, its lowest figure in the last quarter of the century, the issuer has carried out four injections of liquidity.
Already on January 19 it announced that it would introduce at least 600 billion yuan (about 91,000 million dollars, 84,000 million euros) into the market to increase the liquidity available for the lunar New Year holidays through three channels: ” permanent loans “,” medium-term credits “and” supplementary loans with guarantees “.
A day later, he injected 150,000 million yuan (22,900 million dollars, 21,000 million euros) into the money market through short-term operations and, last Thursday, granted “repos” at seven and twenty-eight days for a total value of another 400,000 million yuan (60,800 million dollars, 56,000 million euros).
The Chinese central bank usually injects liquidity into the financial system at this time to ensure that entities have cash for the lunar New Year holidays (celebrated this year on February 8), when an increase in consumption is expected.
However, the amounts introduced this year are much higher than those of previous years, since in 2015, for example, only lent 80,000 million yuan (about 12,000 million dollars, 11,000 million euros).
The chief economist of the Banco Popular, Ma Jun, said in an interview with the official Chinese Business Daily that these measures could be “a substitute for a cut in the mandatory reserve ratios”.
The analyst for China of the Swiss bank UBS Wang Tao explained, in a note to the clients, that the Chinese central bank is looking for alternatives to guarantee the liquidity of the market and maintain the stable yuan exchange rate.
A cut in the cash ratio could send too strong a signal to markets that China is easing its monetary policy, which, according to this expert, could put downward pressure on the yuan’s exchange rate and, as a consequence, aggravate the capital flight that drags the country.