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China cuts reverse repo rate to support economy

By Sean Farrell

Date: Monday 30 Mar 2020

China cuts reverse repo rate to support economy

(Sharecast News) - China's central bank made a surprise cut to the rate on reverse repurchase agreements as the authorities sought to ease pressures on the economy from the Covid-19 pandemic.
The People's Bank of China said it would cut the seven-day reverse repo rate to 2.20% from 2.40% - the biggest reduction in almost five years. Cutting the rate reduces the cost of borrowing for businesses and increases the supply of money.

China is reopening after controlling the Covid-19 outbreak with extreme measures to contain its spread but the virus is now shutting down economies in western markets that consume Chinese-made goods.

The central bank did not give a reason for the cut, which is the third since November. Economists said earlier measures had not done enough to reduce interest rates charged by banks to struggling businesses.

Ma Jun, a central bank adviser, told state media China had plenty of room for monetary policy measures and the rate decision was based on the return of Chinese companies to work, the global virus situation and a deterioration in the external economic environment, Reuters reported.

Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said: "Policymakers are realising that the economy won't bounce back if it doesn't have the liquidity and wider government support. External demand will contract sharply in Q2, thanks to measures taken to defend against Covid-19.

"Chinese domestic demand should recover, but GDP overall will be hobbled unless the authorities provide liquidity to support working capital and inventory build until the rest of the world is ready to buy Chinese goods again."

Friday's politburo meeting signalled the Chinese government would step up policy measures and tighten enforcement to support annual economic and social development targets.

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