Covid-19: China's Monetary Policy and the Resilience of Its Macro-Financial System

With its rapid transmission，severe symptoms，and high death rates，Covid-19 had spread across China by the end of January 2020. It has since proved far more infectious and dangerous than the deadly SARS (Severe Acute Respiratory Syndrome) outbreak of 2002-2003. It has also imposed  a huge challenge to the Chinese economy，which was already under significant pressure from prolonged US-China trade friction，an economic slowdown，and painful but necessary structural reforms.

When financial markets reopened on February 3，following the Chinese Spring Festival，investors' deep concerns was obvious. The Shanghai Stock Exchange (SSE) Composite Index dropped 7.7% for the biggest single day loss since August 2015. The median credit spread across AA+ rated industry bonds of different maturities widened by about 18 basis points，the third largest one-day increase since January 2010. In response to mounting concerns regarding the extent of the impact of Covid-19，the People's Bank of China took decisive action，using a wide range of monetary policy tools to restore market liquidity and bolster macro-financial stability.

This article reviews the key steps taken by China's central bank and evaluates the effects of the monetary policy initiatives on the interbank and credit markets as well as the overall stability of the economy.