Jan 10, 2019 (China Knowledge) - China’s central bank will commence lending of money to banks under the newly created targeted medium-term lending facility (TMLF) policy tool announced last December to increase its support to the economy.
The TMLF aims to provide long-term funding for financial institutions supporting small and private businesses at lower cost, and is part of a series of measures the government has introduced to support China’s slowing economy.
Other measures include cutting banks’ reserve requirement ratio (RRR) which the government has done 4 times last year and once this month and an expansion of credit through the medium-term lending facility (MLF) which is another tool for banks to borrow funds from the central bank at a lower rate introduced back in 2014.
According to governor of the Chinese central bank, Yi Gang, the next step for policy makers is to ensure these liquidity measures are adequately transmitted to the real economy instead of banks just using them to hit certain targets.
As such, the central bank will work with other government departments to provide incentives to banks such as giving tax exemptions on interest income form loans given to small and micro firms and loosening some due diligence requirements.
Despite the new stimulus measures, China will continue to go on its deleveraging campaign to reduce debt risks, overcapacity and “zombie” firms.
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