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China Central Bank signals additional policies to support the virus-ravaged economy

Image:-Bank of China

On Sunday, China's central bank said it would strengthen counter-cyclical adjustments to support the economy and make monetary policy more flexible in order to combat financial risks.

The People's Bank of China's (PBOC) First-Quarter Monetary Policy Implementation Report did not repeat the central bank's long-standing vow to refrain from "fleeting" stimulus to support growth that strengthened signs of more policy measures.

Despite a coronavirus outbreak, the central bank said that China's long-term stable economic trend remains unchanged.

"But, at the moment, Chinese economic development challenges are unprecedented, and we need to take account of difficulties, risks, and uncertainties," he said.

The bank claimed to maintain large liquidity through both aggregate and structural policies and to continue deepening interest rate reforms to contribute to lower borrowing costs and to more efficiently allocate financial resources in the economy.

The central bank will also support the real economy, especially SMEs, it said.

"We should deal properly with the relationship between stabilizing growth, securing jobs, structural adjustment, risk prevention, and inflation control," the PBOC stated.

In the first quarter of a year earlier China's economy contracted 6.8 percent, a decline that first took place in 1992, when the outbreak of coronavirus paralyzed production and spending, putting pressure on governments to do more to stop increasing job losses.

Since the beginning of February, PBOC has already taken a series of easing steps, including reductions in reserve requirements and credit rates and targeted support to virus-hit companies.

The central bank will continue to further the LPR reform and improve the monetary policy transfer mechanism to contribute to lower borrowing costs, it said.

In August 2019, PBOC revamped the benchmark credit rate mechanism by replacing the existing benchmark lending rate with market-driven LPR.

It maintains M2 and social financing growth in line with and slightly higher than nominal GDP growth.

It will deepen the reform of the foreign exchange market, maintain yuan flexibility and keep yuan stable.

China's financial markets will also be developed to fuel growth and economic restructuring said the Central Bank.

The government will support private corporation fundraising through equity funding and bond sales, partly to reduce the excessive dependence of the economy on bank lending.

In the meantime, PBOC stated that it would encourage the "systemic" opening up of its bond market and introduce longer-term investors.

To protect investors, regulators will seek to harmonize disclosure rules for different types of credit bonds and enhance the bond default mechanism.

PBOC has also pledged to promote an inclusive and resilient financial system and to continue improving corporate governance in major financial institutional institutions, including commercial banks.

Article Edited by | John Heine |

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