China signals more monetary support in the midst of a reopening of Wuhan where the coronavirus pandemic originated.
The People’s Bank of China injected 50 billion yuan ($7.1 billion) into the banking system and cut seven-day repo rates from 2.2 percent to 2.4 percent, the deepest reduction since 2015.
After a raft of easing measures coupled with lockdowns, China has kept monetary policy stable since February while its global central banking peers have loosened significantly. The move to loosen coincides with a recent announcement by the country to start partial lifts of lockdowns in Wuhan beginning April 8.
Gloomy Outlook
Concurrently, China’s authorities pledged to support the economy by boosting sovereign debt sales. Authorities will tolerate a higher fiscal deficit alongside the issuance of special sovereign debt and local government infrastructure bonds, according to a meeting of Beijing's top leadership last week.
Still, the outlook remains gloomy. Goldman Sachs recently revised its China GDP forecast from 2.5 percent growth to a 9 percent reduction. In the worst-case scenario, UBS analysts expect mainland banks to be hit by a 5.2 trillion yuan ($730 billion) surge in non-performing loans and 39 percent profit drops.
And a dented outlook aside, Chinese stimulus still faces the risk of limited effectiveness due to issues like misuse of funds or inefficiency, even in programs specifically targeting initiatives to combat the outbreak.
