(Yicai Global) Nov. 9 -- China’s central bank has unveiled a new monetary policy tool to help the country achieve its carbon neutrality goals by making low-cost loans to banks that will be issued to firms working at cutting carbon emissions.

The People's Bank of China will provide 60 percent of the loan principal to businesses for carbon emissions cuts at an annual interest rate of 1.75 percent, the bank said in a statement posted on its website late yesterday.

“The carbon reduction tool is an ‘additional means’ which uses incremental funding to support investment and development in key areas such as clean energy to increase the overall energy supply capacity,” a PBOC official said.

The loans, which only national financial institutions can apply for, will prioritize clean energy, energy conservation, environmental protection, and carbon reduction technology fields, the official said.

Lenders that receive the loans will be need to disclose such information as which carbon emission fields are being supported, the number of projects, the amount lent, the weighted average interest rate, and carbon emissions reduction data.

The new tool is very important and will have a long-term role, Wen Bin, chief researcher at China Minsheng Bank, told Yicai Global. It will also enrich the PBOC’s monetary policy tools, he added.

Some investors greeted the move as an indirect cut in interest rates, as 1.75 percent is below the rate for the same-period medium-term lending facility. But Everbright Securities’ chief fixed-income analyst Zhang Xu said it was wrong to label it such as the move is of limited impact as it is a monetary policy tool with a relatively small size.

Moreover, the interest rate on the new loans is not a policy rate, so the fact that it is higher or lower does not represent a change in monetary policy direction, Zhang said, adding that the tool has a strong refinancing property, so it is inappropriate to compare it with the MLF. He noted that the existing rate for financial stability refinancing is also 1.75 percent.

Editors: Liao Shumin, Futura Costaglione