China Injects $39.8 Billion Into the Economy

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The Chinese Central bank decided to grant $39.8 billion dollars in medium-term loans to some commercial lenders. The measure would benefit small businesses and would provide them with affordable financing. The People's Bank of China also announced that the interest rate of such a loan would be a one-year 3.15 percent, the same rate they announced in December last year.

Investors were speculating that China would choose to continue the loan program they launched last December as they're trying to help small businesses, which are usually disregarded by commercial banks as they prefer to loan their funds to state-owned companies.

Due to the slowing economic conditions, China decided to aid their local economy using conventional policy tools like tax cuts and monetary policy easing, hence their decision to lower the central bank reserve requirement ratio. The former has only begun to have a consistent effect on the economy recently, while the latter has proved to be one of the main preferred policy tools, even though it's currently on hold.

The central bank fears that if it continues pumping huge quantities of cash into the economy it would reignite some economic bubbles, according to some insider sources.

Despite this decision, investor's expectations of further economic stimulus have changed recently since economic data improved significantly in the first quarter of this year. However, some analysts claim that it is too soon to tell whether this is a sustainable change. The Chinese economic growth hit a historical low in 2018, going down to 6.6 percent, the lowest figure in three decades.

Investors feel unease due to this possible change in the economic outlook, as their confidence in the market relies a lot on the amount of economic stimulus provided by the Chinese government. This unease has made the financial markets to move back after several sessions rallying.

Whether this situation will continue or not depends on the sustainability of the current improving economic conditions.

Sara Patterson has a Master’s Degree in political science and enjoys analyzing both current events and the international markets to get a fuller perspective of the currency market. Before turning to financial writing, she taught English writing skills to high-school age students. Sara’s work has been published on various financial and Forex blogs.