China is faced with a weak economy and has taken drastic measures to step up the financial system.
“The economy of China needs help”, says senior economist Trinh Nguyen at Natixis in Hong Kong.
With economic growth going down to 28-year lows, policymakers in China have felt a need for more stimuli to pull up the economy. Aggressive measures are to be taken to bring up the economy of the second-largest country into better shape.
With records showing poor trade data for December and factory activities decreasing, the central bank and the finance ministry have stepped in with a single-day record stimulus package. The central bank of China has brought in 560 billion Yuan on Wednesday into the system, which is a record amount stimulus for a single day.
The PBOC is making sure that there will be sufficient funds in the economy’s financial system to meet tax payments.
The Lunar New Year is a holiday time which starts at the beginning of February and cash demands have to be met.
The banking system requires more liquidity to provide the right flow of money in the economy, says the People’s Bank of China.
On Tuesday, the reserve ratio of banks was cut by 50-basis point cut. Another cut is expected to be on Jan 25. The injections are of larger quantity this time and will be able to release $116 billion for better liquidity into the system.
The Chinese government has assured continuous help in a consistent manner for a better growth rate.
The 10-year bond in China has fallen less than 3.1 percent, which is the lowest in two years, says data from Wind, the financial database. With a fall in yield, bond prices rise which signify an economic decline.
The economic growth has been much affected, especially after the trade war with the U.S. Business in China has been sluggish for almost a year.