The move aims to reduce the economic impact from the coronavirus pandemic. The Chinese central bank reduced the interest rate on the seven-day reverse repurchase agreements from 2.4% to 2.2% as it injected CNY 50 billion (EUR 6.3 billion) into the banking system. The central bank said this will keep liquidity enough to help the real economy.
Furthermore, the first cut to a PBOC policy rate since February 2020 is in line with a pledge by the government to increase support to the economy through increased sales of sovereign debt, as domestic, and international demand slumps due to COVID-19 pandemic.
China will increase its fiscal deficit as a share of gross domestic product, issue special sovereign debt and allow local governments to sell more infrastructure bonds as part of a package to stabilise the economy.
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