China: Central bank to inject billions of dollars into financial system

On March 16, China's central bank pumped cash into the financial system. As per reports, the cash was pumped through open market operations and was done in order to maintain liquidity in the market. A total of 100 billion yuan (about 14.28 billion U.S. dollars) was injected into the market.

Funds will mature in a year

According to reports, the People's Bank of China has said that the money was injected through a medium-term lending facility (MLF). The funds are expected to mature in one year at an interest rate of 3.15 per cent. The MLF was introduced in 2014m it was introduced to help commercial and policy banks maintain liquidity by allowing them to borrow from the central bank by using securities as a form of collateral.

As per reports, the central bank skipped reverse repo on March 16. A reverse repo is a process in which the People's Bank of China purchases securities from commercial banks through the process of bidding with an agreement to sell them back in the future. In addition, on March 13 the People's Bank of China announced that it would begin implementing targeted reserve requirement ratio (RRR) cuts for eligible banks from March 16 onwards. PBOC also said that in the long term the scheme would release 550 billion yuan.

Read: China Reports 14 New Coronavirus Deaths; Imported Cases Rise To 123

Read: China Makes 2-week Quarantine Compulsory For Foreign Returnees As 'imported' Cases Rise

The reserve requirement ratio (RRR) cuts are mainly targeted inclusive finance and banks that meet certain criteria and can then enjoy 50 to 100 basis points of RRR cuts. Also eligible joint-stock commercial banks will be given an additional targeted RRR cuts of 100 basis points so that they may support lending in inclusive finance.

What is the Reserve requirement ratio?

The reserve requirement ratio or the cash reserve ratio is a regulation that is employed by most of the central banks around the world.  The regulation sets a minimum amount of reserves that must be held by a commercial bank.

Read: COVID-19: China Eases Travel Restrictions After Two Months Of Lockdown

Read: China’s Move To Lockdown Wuhan Delayed Spread Of Coronavirus Outside: Study