PBOC carbon reduction loan program has small start, but great potential, analysts say


The Chinese central bank’s new monetary policy tool to support carbon emission reductions could free 400 billion yuan ($ 63 billion) in financing for financial institutions over the next year under different scenarios, with the potential to release much more in the long run, analysts say.

On Monday, the People’s Bank of China (PBOC) announced the launch of its support for carbon reduction tooI, designed to provide cheap financing to financial institutions that operate nationwide to channel low cost loans to companies in the clean energy, environmental protection, energy conservation sectors and carbon reduction technologies.

The tool is a targeted credit easing measure and an incentive for financial institutions to fund carbon reduction projects, some analysts have said.

The initiative is part of the broader framework of budgetary and monetary support provided for in the China’s road map to achieve zero carbon emissions by 2060. It came as the world debated strategies to deal with climate change in the United States. COP26 Glasgow conference and see if major carbon emitters such as the United States and China will take firm action.

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Financial institutions such as commercial banks interested in participating in the initiative will first need to issue a loan to a qualified carbon reduction project and then apply to the PBOC for support of up to 60% of the principal at an interest rate. by 1.75%. .

The policy equates to an interest rate cut of 72 basis points on the cost of qualifying green loans, with the annual interest rate on the PBOC’s medium-term loans being 2.95%, analysts estimated. of the brokerage firm China International Capital Corp. Ltd. in a Tuesday note.

This type of liquidity injection will be more efficient and accurate in achieving the goal of the PBOC than another approach in which the central bank first injects liquidity into the financial system and banks create credit later, have writes analysts at Hongta Securities Co. Ltd. in a note.

But analysts generally believe that the credit triggered by the initiative will be moderate in the short term given the limits the PBOC has set for itself and the stringent standards expected of banks to pick the right projects.

Additionally, some analysts have said this policy is not a sign that overall monetary easing is on its way, as it aims to cut carbon emissions instead of easing monetary policy. Overall, China’s monetary policy remains constrained by mounting inflationary pressures, analysts at Huatai Futures Co. Ltd. wrote. in a note.

Some analysts believe the initiative will have a greater impact in the future. Indeed, the central bank will likely expand it to cover more financial institutions and green industries, as China’s transition to net zero carbon emissions is expected to require hundreds of billions of yuan in new investments, they said.

Contact reporter Guo Yingzhe ([email protected]) and editor-in-chief Michael Bellart ([email protected])

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