(Bloomberg) -- China’s central bank pledged to increase support for the economy, seeking to reassure investors as financial markets take a hammering from a worsening growth outlook and threats of widespread Covid lockdowns.
The People’s Bank of China “will step up the prudent monetary policy’s support to the real economy, especially for industries and small businesses hit hard by the pandemic,” it said in a statement on Tuesday. The bank said it will promote healthy and stable development of financial markets and provide a good monetary and financial environment. It reiterated it will keep liquidity reasonably ample.
The statement follows a PBOC decision Monday to cut the amount of money that banks need to keep in reserve for their foreign currency holdings, an attempt to help limit the drop in the yuan. The central bank said Tuesday the recent volatility in the markets has been mostly driven by changes in investors’ expectations and sentiment, adding that China’s economic fundamentals remain good.
The benchmark CSI 300 Index erased an earlier 0.8% gain to drop as much as 0.6%, after tumbling 4.9% on Monday, the biggest loss since February 2020. The Chinese currency trading onshore was little changed at 6.5589 per dollar as of 10 a.m. local time, after weakening 3% in the previous five sessions. The offshore yuan traded 0.2% weaker.
“I expect policy easing to remain targeted with a focus on helping smaller companies and sectors harder hit by Covid disruptions,” said Liu Peiqian, a China economist at NatWest Group Plc. “More forceful and broad-based easing” may be rolled out after Covid outbreaks are brought under control, she said.
The PBOC will add 100 billion yuan ($15.2 billion) of quota to its relending program to support the production and storage of coal, according to the statement. The program provides loans to commercial banks for lending to targeted sectors.
The central bank will also set up relending funds for the aviation sector, on top of expanding the program to cover more small businesses, technological innovation and elderly care.
The central bank said it will complete the rectification work at major internet companies as quickly as possible and facilitate healthy growth of the platform economy, according to the statement.
(Updates with additional details.)
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