SHANGHAI, April 7 (Reuters) – China’s primary money market rates fell sharply on Tuesday, with the overnight borrowing cost hitting a record low as liquidity in the banking system remained ample and the central bank announced easing measures to combat coronavirus disruption.
Interbank borrowing costs plunged across the board. The volume-weighted average rate of the benchmark overnight repo fell to 0.7865% in afternoon trade, the lowest level since the data has been available.
Traders attributed the declines in the interbank rates to the central bank’s decision last Friday to lower the interest rate on financial institutions’ excess reserves for the first time since the global financial crisis.
A trader at a foreign bank said the interest rate on excess reserves served as the bottom of China’s interest rate corridor. Cutting such a rate should help lower financing costs and encourage commercial banks to lend.
On the same day, the People’s Bank of China also said it was cutting the amount of cash that small banks must hold as reserves, releasing around 400 billion yuan ($56.69 billion).
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