China’s central bank injected Rmb502bn ($74bn) into its banking system on Monday to help fortify a weakening domestic economy against the impact of an escalating trade war with the US and growing friction with Washington over its falling currency. The injection was the most emphatic move in a series of recent indications that Beijing is moving to ease monetary policy. It follows a renewed threat by Donald Trump, US president, late last week to impose tariffs on all of China’s $500bn in exports to the US.
Raising the risk that the US-China trade war could turn into a currency war, Mr. Trump has accused Beijing of manipulating the renminbi, which last Friday reached its lowest point for a year against the US dollar. It has fallen 5 percent since the start of last month. The injection was the largest ever by the People’s Bank of China using its so-called Medium-term Lending Facility.
This policy tool was created in 2014 to provide loans to commercial banks for three to 12 months. “Releasing liquidity can activate some credit flows, but it’s still too early to call this broad-based stimulus,” said Shao Yu, chief economist at Orient Securities in Shanghai. “This is more about replenishing liquidity than fully opening the floodgates. Right now deleveraging is still the main emphasis.”