The People’s Bank of China is using both money and words to try to ease market concerns about escalating trade tensions and the weakening economy.
The central bank injected another 200 billion yuan ($31 billion) into the economy via its medium-term lending facility on Tuesday. Combined with the funds it added earlier this month, that’s a net injection of 403.5 billion yuan so far in June, the most in any month since December 2016.
Those additional funds come after a statement which said the central bank will handle the “pace and intensity” of an ongoing campaign to reduce leverage in the economy, indicating that some leeway exists for policy tweaks as required. It also said the central bank had set up a global financial risk team to closely monitor any external and domestic risks.
Those efforts haven’t have the desired effect so far — Chinese stock investors headed for the exits on Tuesday, sending the benchmark equity gauge below the 3,000 level for the first time since September 2016.
“The central bank may hope to ease market sentiment before the trade war between China and the US intensifies and avoid too much panic in markets,” said David Qu, an economist at Australia & New Zealand Banking Group Ltd. in Shanghai. He added that monetary policy is “under pressure to take some action” in the face of rising bond defaults and corporate financing difficulties.
The rising prospect of an all out trade war complicates policy makers’ efforts to curb debt in the world’s second-largest economy, especially with signs that economic growth is already slowing down.