After injecting 1.2 trillion yuan, or roughly $174 billion, of liquidity into the country's financial markets, China's central bank has now decided to inject even more money in an attempt to further stabilize market expectations. On Tuesday, the People's Bank of China (PBOC) announced that it has injected an additional 400 billion yuan, or roughly $57 billion.
The injection of additional funds through the purchase of securities from financial institutions on Tuesday is the second straight day that the PBOC has stepped in to boost investor confidence in the markets given the ongoing turmoil caused by the novel coronavirus outbreak. Monday's injection was already considered to be the PBOC's largest single-day liquidity injection in history.
The PBOC injected the funds into the markets mainly through seven-day reverse repos with an interest rate of 2.4 percent. Other funds were also placed into the markets through 14-day reverse repos at an interest rate of 2.55 percent. Around 100 billion yuan of reverse repos had matured on Tuesday, adding to the net injection made by the PBOC.
Despite the massive injection during the reopening of the markets this week, major indexes in the mainland still plummeted. The Shanghai Composite fell by as much as 7.7 percent, while the Shenzhen Component Index dropped by 8.5 percent. Overall, the drop in the major indexes on Monday wiped out a combined $445 billion in market value. Monday was considered to be Shanghai's worse day since 2015, while Shenzhen had its worst single-day percentage drop since 2007.
The PBOC mentioned in a statement on Tuesday that it hopes that the more-than-expected liquidity injection can further stabilize the markets by keeping interest rates of money markets and bond markets down. The added funds are expected to greatly reduce financing costs and hopefully ease pressures on companies heavily affected by the ongoing viral epidemic.
International Monetary Fund (IMF) chief Kristalina Georgieva noted on social media this week that the organization is fully supporting China's efforts to respond to the crisis. The organization further expressed its confidence in the resilience of China's economy during these challenging times.
The PBOC has vowed to continue in the implementation of policies and measures that will help stabilize the country's money markets. The central bank added that its efforts have so far resulted in the return of the country's currency to the 1 to 7 ratio. On Tuesday, the Chinese yuan stood at 7.0027 per US dollar, stronger than the rate recorded on Monday when it fell below the ratio.
