Beijing opens cash tap

The People's Bank of China unexpectedly cut the rate on seven-day reverse repurchase agreements by 20 basis points to 2.2 percent, the largest in nearly five years, as Beijing ramped up steps to relieve pressure on a ravaged economy.

Central bank adviser Ma Jun said Beijing still has ample room for monetary policy adjustment and the rate decision took into consideration the return of Chinese companies to work, the global virus situation and a deterioration in the external economic environment. This move can further lower the financing cost of the economy.

It was the third cut for the rate since November and came as the virus infections in China have slowed from its peak.

Founder Securities chief economist Yan Se said the cut was China's commitment to a pledge it made during the group of 20 major economies meeting last week to stabilize financial markets.

"China was the only major economy that had not yet implemented large-scale easing measures" he said, noting that many other nations have implemented quantitative easing and deeper cuts to benchmark rates.

Earlier in the day, the bank injected 50 billion yuan (HK$54.6 billion) into money markets through seven-day reverse repos, breaking a hiatus of 29 trading days with no fresh injections.

Xing Zhaopeng, markets economist at ANZ in Shanghai, said the latest cut follows the Communist Party's politburo meeting on Friday.

"The medium-term lending facility rate and loan prime rate will be cut at the same pace this month. We believe this cut is a signal to urge all loan parties to refer to the LPR as the benchmark so that the PBOC can improve the effectiveness of monetary policy transmission," he said.