indian market
China’s central bank, the People’s Bank of China (PBOC), recently announced that it will inject 500 billion yuan, or $70 billion, in cash into the money market through its new policy. The objective of this measure is to overcome the weaknesses of the Chinese economy and motivate banks to grant more loans. With this new tool, the central bank has initiated cash flow through a reverse repurchase agreement. This agreement will last for six months, which will help banks have cash available for a long time.
It will become a problem for the Indian market.
With this step by the People’s Bank of China, positive changes can also be seen in the stock market, which will create greater attraction for foreign investment. The objective of this strategy is to boost domestic demand, currently weak due to the decline in the real estate market. Becky Liu, head of China macroeconomic strategy at Standard Chartered, believes this step by the People’s Bank of China can be helpful in strengthening liquidity and balancing payment pressure on banks. Previously, liquidity was affected due to declining loan and deposit repayments under the Medium Term Loan Facility (MLF).
If foreign investors are attracted to China, just like in October, they will continue to withdraw from the Indian market in November as well. Because of this, the market will continue to fall and sink even further. In October, there was a sell-off of over 6 per cent in the market, causing investors to lose over Rs 20 lakh crore.
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How will the sinking Chinese ship be saved?
The People’s Bank of China’s new tool, which provides long-term liquidity from the current seven-day reverse repo, will help banks recover from the financial crisis. The People’s Bank of China said in its statement that it also purchased 200 billion yuan worth of government bonds on the open market in October, which is part of its stimulus policy. This will maintain adequate liquidity in the banking system and the credit system will be smooth.
What do the experts say?
Mizuho Securities economist Serena Zhou believes the impact of a 500 billion yuan cash injection is equivalent to a 25 basis point cut in the bank’s reserve requirement ratio (RRR), but its cost could be higher . The interest rate has not been revealed, but this step may prove useful in maintaining cash flow in the economy in the future. Therefore, the People’s Bank of China has reorganized its monetary authority to make it more efficient in line with global practices, which is expected to bring stability and growth to Chinese financial markets.
