China's central bank plans to offer cheaper liquidity to domestic lenders in its latest attempt to boost lending to small and private businesses.
The People's Bank of China said Dec. 19 that it is creating a so-called targeted medium-term lending facility, which will lend funds to qualifying banks for up to three years based on the growth in their loans to small and private companies.
The one-year interest rate on the targeted facility will be 15 basis points lower than that on the current medium-term lending facility, which stands at 3.30%, the central bank said.
Banks will need to apply for the targeted facility with the central bank.
Liquidity stress on small and private companies in China is building up amid the government's crackdown on shadow banking, which was one of the major funding sources for borrowers without strong credit profiles. The slowing domestic economy as well as escalating global trade friction are also adding to the pressure.
The central bank has cut required reserve ratios four times since the beginning of this year to free up more cash for lending, although the funding needs of the sector are still not met.
The central bank also said Dec. 10 that it will increase re-lending and rediscount quotas by 100 billion yuan as part of its efforts to increase liquidity for small and private businesses.
As of Dec. 19, US$1 was equivalent to 6.89 Chinese yuan.