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China’s Central Bank to Inject US$174 Billion of Liquidity into Markets amid New Coronavirus Outbreak

Published on 2020-02-03T00:32:28 by Lisa Schleifer

China’s central bank will pump 1.2 trillion yuan (US$174 billion) into financial markets on Monday, as part of an effort by regulators to mitigate volatility when trading opens against the backdrop of a new coronavirus outbreak.

Investors in Shanghai and Shenzhen are bracing for a possibly brutal return to trading when markets resume for the first time since the Lunar New Year holiday.

The outbreak of a novel coronavirus, which has killed at least 304 people and infected more than 14,380 in mainland China, has ground economic activity to a near standstill in China, as authorities take aggressive measures to contain the flu-like disease, curbing public transport, shuttering entertainment venues and shortening business hours.

In the face of the “epidemic situation”, the People’s Bank of China (PBOC) said on Sunday it would “inject 1.2 trillion yuan via reverse repo operations on February 3 to ensure sufficient liquidity supply.”

“The liquidity of the overall banking system will be 900 billion yuan more than the same period of last year,” the central bank added.
It is the first time that the central bank has made such an announcement and also marks the largest single-day reverse repo operation it has ever conducted.

According to Reuters calculations, 1.05 trillion yuan (US$151 billion) worth of reverse repos are set to mature on Monday, meaning that 150 billion yuan in net cash will be injected.

The injection is one of 30 measures announced by multiple authorities this weekend to steel the economy against disruption from the coronavirus outbreak.

Economists have forecast China’s economic growth may drop below 5 percent in the first three months of the year, from 6 percent in the fourth quarter of 2019, and many have warned the downward trend may continue into the second quarter.

China’s securities watchdog said on Sunday that the virus outbreak would only have a short-term impact on stock markets, but it would be on alert for “abnormalities”, the People’s Daily reported. The China Securities Regulatory Commission said it was considering unveiling a hedging instrument to offset any panic in the market and would suspend evening futures trading starting from Monday.

China has taken unprecedented steps to tackle the virus outbreak, issuing travel restrictions that have locked down more than a dozen cities in Hubei province, including the capital and epicentre of the outbreak Wuhan.

Cities outside the central Chinese province have also been hit severely by the outbreak, with governments around the country extending the Lunar New Year holiday to delay people from travelling and banning public gatherings.

Amid the travel restrictions, railway passenger traffic has continued to decline. The volume of train trips slumped by 78.5 per cent to 2.6 million on Saturday – the eighth day of the holiday period – from a year earlier, the country’s rail operator said.