jpm_asset_mgmt
  • Products

    Funds

    • Performance & Yields
    • Liquidity
    • Ultra-Short
    • Short Duration

    Solutions

    • Empower Share Class
    • Cash Segmentation
    • Separately Managed Accounts
    • Managed Reserves Strategy
    • Capitalizing on Prime Money Market Funds
  • Insights

    Liquidity Insights

    • Liquidity Insights Overview
    • Audio Commentaries
    • Case Studies
    • Leveraging the Power of Cash Segmentation
    • Cash Investment Policy Statement
    • China Money Market Resource Centre
    • PeerView Survey

    Market Insights

    • Market Insights Overview
    • Eye on the Market
    • Guide to the Markets
    • Market Updates

    Portfolio Insights

    • Portfolio Insights Overview
    • Currency
    • Fixed Income
    • Long-Term Capital Market Assumptions
    • Sustainable Investing
  • Resources
    • MORGAN MONEY
    • Account Management & Trading
    • Multimedia
    • Announcements
    • Total Return Comparison Calculator
  • About us
  • Contact us
Skip to main content
  • English
  • Role
  • Country
  • MORGAN MONEY LOGIN
Search
Menu
CLOSE
Search
You are about to leave the site Close
J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
CONTINUE Go Back
  1. Home
  2. Insights
  3. Liquidity Insights Overview
  4. Implications of COVID-19 outbreak for short term interest rates

  • Share
  • LinkedIn Twitter Facebook
  • Email
  • Print
  • Actions
  • LinkedIn Twitter Facebook
    Email Print

Implications of COVID-19 outbreak for short term interest rates

02/05/2020

Aidan Shevlin

Background

The recent coronavirus (2019-nCoV) outbreak in China has increased investors’ trepidation and financial market uncertainty. Domestic Chinese economic activity has been disrupted and the impact on China’s Q1-20 GDP is likely to be substantial, with ripple effects across the Asian region.

Initially, the more proactive and open policies of the Chinese government in managing the outbreak combined with lower fatality rates relative to the SARS epidemic in 2003 implied that 2019-nCoV was less serious. However, asymptomatic transmission have raised concerns about how long it will take to contain the outbreak.

Financial market

After an extended Chinese New Year holiday, Chinese financial markets re-opened last Monday (3 February). Fortunately, despite investor concerns, bond and money markets were able to operate as normal – albeit with reduced volumes and fewer counterparties. Many other industries remain closed and will be subjected to phased opening over the coming weeks.

The financial authorities, led by the People’s Bank of China (PBoC), implemented several proactive actions to ensure sufficient liquidity and prevent volatility. These included two large liquidity injections by the central bank (a net CNY 150bn reverse repo injection on 3 February, and a net CNY 400 bn on 4 February) and a 10bps cut to the 7-day and 14-day reverse repo rates to 2.40% and 2.55% respectively.

Other regulators, including the Ministry of Finance, China Securities Regulatory Commission, and China Banking and Insurance Regulatory Commission announced several additional measures to help stabilize markets. These included support for companies impacted by the coronavirus outbreak and delays in implementing new regulatory rules for firms that may have difficulty implementing them.

The more accommodative monetary and regulatory announcements helped support financial markets and minimized volatility – as did the phased opening of different industries and businesses. In previous years, the PBoC has actually withdrawn liquidity following Chinese New Year holidays. In contrast, the combination of large liquidity injections, combined with recent cuts to the Reserve Requirement Ratio (RRR), Medium-Term Lending Facility (MLF), and Loan Prime Rate (LPR), all suggested a more dovish policy tilt by the central bank.

Outlook

Until evidence emerges that the authorities’ aggressive containment and quarantine measures are working, a high level of uncertainty will remain. Regardless, the economic impact of the coronavirus outbreak on first quarter growth will likely be impactful.

We expected the authorities to announce further support measures to counter the negative economic impact – which will likely include further tax cuts, easier borrowing conditions for companies, additional infrastructure investment and measures to stimulate consumption.

In addition, the PBoC will retain its easing bias – potentially implementing additional rate cuts in MLF, LPR and RRR. Although the pace and size of future rate cuts is unlikely to be aggressive, market driven interest rates will likely decline further.

MORE INSIGHTS

Liquidity Insights

We simplify the complex with insights on market events that affect liquidity portfolios to help clients make confident investment decisions.

Learn more

Eye on the Market

Explore Eye on the Market, timely commentary that offers views on the economy, markets, and investment portfolios by Michael Cembalest.

Learn more

Market Updates

Read our weekly commentaries to get market insights that may help inform your investment strategy.

Learn more
Liquidity Volatility
J.P. Morgan Asset Management

  • Investment stewardship
  • About us
  • Contact us
  • Privacy policy
  • Cookie policy
  • Binding corporate rules
  • Sitemap
  • Accessibility
Decorative
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase

READ IMPORTANT LEGAL INFORMATION. CLICK HERE >

The value of investments may go down as well as up and investors may not get back the full amount invested.

Copyright 2021 JPMorgan Chase & Co. All rights reserved.