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Massive injection of liquidity in China to help counter economic effects of the epidemic

Monday, February 3rd 2020 - 07:40 UTC
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Chinese authorities have pledged to use monetary policy tools to ensure liquidity remains reasonably ample and support firms affected by the virus epidemic Chinese authorities have pledged to use monetary policy tools to ensure liquidity remains reasonably ample and support firms affected by the virus epidemic

China's central bank said it will inject 1.2 trillion Yuan (US$ 174 billion) worth of liquidity into the markets via reverse repo operations on Monday as its stock markets prepare to reopen amid an outbreak of a new coronavirus.

Chinese authorities have pledged to use various monetary policy tools to ensure liquidity remains reasonably ample and to support firms affected by the virus epidemic, which has so far claimed more than 305 lives, all but one in China.

The People's Bank of China made the announcement in a statement on Sunday, adding that the total liquidity in the banking system will be 900 billion Yuan higher than the same period in 2019 after the injection.

Central bank data showed that 1.05 trillion Yuan worth of reverse repos are set to mature on Monday, meaning that 150 billion Yuan in net cash will be injected.

Investors are bracing for a volatile session in Chinese markets when onshore trades resume on Monday after a break for the Chinese New Year which was extended by the government.

China's stock, currency and bond markets have all been closed since Jan 23 and had been due to re-open last Friday.

There will be no further delays to the reopening, the securities market regulator said in an interview in the People's Daily newspaper on Sunday.

The China Securities Regulatory Commission (CSRC) said it had taken the decision after balancing various factors, and believed the outbreak's impact on the market would be short term.

To support firms affected by the epidemic, the CSRC said companies that had expiring stock pledge agreements could apply for extensions with securities firms, and it would urge corporate bond investors to extend the maturity dates of debt.

The CSRC is also considering launching hedging tools for the A-share market to help alleviate market panic and will suspend evening sessions of futures trading starting from Monday, it said.

“We believe that the successive introduction and implementation of policy measures will play a better role in improving market expectations and preventing irrational behavior,” it told the People's Daily.

State news agency Xinhua said on Sunday that China's economy was resilient enough to counter the shock caused by the virus, and said remarks made by a US federal official - whom it did not name - that the virus could bring jobs back to the United States were “self-centered, unprofessional and unethical”.

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