For the second time in two weeks, China’s central bank added an injection of money into the country’s banking system. This spurred stock-market rallies in both Shanghai and Sydney and sent the signal that the government is trying to stimulate the economy.
The cash injection was actually the second-largest that has ever been put into the banking system. The way that this worked is that the People’s Bank of China used what is called a reverse repos, a short-term type of loan to commercial banks, to pour $42.14 billion into the market on Tuesday.
As Dariusz Kowalczyk, a senior economist at Crédit Agricole CIB, explained, “The central bank seems to be scrambling to bring money-market rates down in order to support growth. The large open-market operation shows a pro-growth policy bias and should thus be positive for market sentiment.”
Ironically, the injection came one day after the International Monetary Fund lowered its forecast for China’s economic growth for this year and for 2013. The IMF expects China’s economy to grow 7.8% this year and 8.2% next year, which is down from their estimates of 8% and 8.4%.