Coronavirus : A Hurdle in the path of Chinese economy

As China continues to lurch violently from the spreading coronavirus, the world is looking forward to a familiar body to jump in and save the day: in this case a central bank i.e. Public Bank Of China (PBOC). To calm the market fearing over the coronavirus outbreak, Chinese authorities have announced a series of monetary solutions.

Since the 2008 financial crisis, Central banks like the PBOC and its counterparts around the world such as the U.S. Federal Reserve and the European Central Bank have been selling out economies and financial markets. To combat recurring episodes of slowness, trillions in digital money printing along with very low interest rates have come across as the key optimal weapon. The People’s Bank of China have declared that they would cut short-term rates and inoculate USD 1.2 trillion of liquidity into the financial system. This movement of the PBOC did a minor help in calming down the sale in Chinese market.

Monday being the right time, a massive reverse repo program was announced by the PBOC along with respective cuts in short-term rates. However, there are some economists who believe that the current situation is too deep for simple monetary solutions to solve. During this virus attack the policy or insurance companies are going through a major unknown while the economy is already slowing. The market economist Hubert de Barochez believes that the steps announced on Monday by PBOC would not be enough to get China’s economy back on track. According to him, the latest cuts in the short term rates is not going directly to offset the drag on economic activity from Chinese authorities’ response to the widespread  especially for travel bans and business closures.

On Monday China’s main stock index dropped nearly 8%. Citigroup has declared their view for GDP of China this year apart from all the tensions about the long term effects of the virus.