CHINA’S central bank added more cash into the financial system to meet a rapid rebound in loan demand after the nation eased Covid restrictions.

The People’s Bank of China (PBOC) injected a net 199 billion yuan (S$38.7 billion) with its one-year medium-term lending facility (MLF) this month, broadly in line with the 200 billion yuan median forecast of economists surveyed by Bloomberg. The MLF borrowing rate was left unchanged at 2.75 per cent on Wednesday (Feb 15), as expected by the majority of analysts in the survey.

China’s sharp exit out of Covid Zero has tightened liquidity as consumption revs up. Overnight money market rates spiked to the highest level since early 2021 last week, a sign of a cash squeeze in a still-fragile economy.

“The PBOC could observe more real data before it makes any major moves if needed,” says Xiaojia Zhi, head of research at Credit Agricole CIB in Hong Kong. “Conditions have remained on the tight side after the Chinese New Year holidays from decent demand for longer term liquidity with more stable funding by the banks beyond the very short term liquidity management.”

Stocks in China and Hong Kong were lower amid a broad decline in Asian equities on Wednesday. The yuan was little changed.

No massive stimulus

The central bank has held back from cutting rates this month as it assesses the impact of a raft of measures to encourage consumption and increase funding supply to the property sector. Deputy governor Xuan Changneng said last month that authorities will maintain “reasonably sufficient” liquidity for the economy this year and that the central bank would avoid flooding the economy with massive stimulus.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“There is still a possibility for easing in March, given the overall credit growth remains slow, and there is a stronger liquidity demand as indicated by heightened volatility interbank,” said Becky Liu, head of China macro strategy from Standard Chartered. “The PBOC may need to inject more liquidity to support a sustainable credit growth recovery.”

The PBOC’s ability to keep policy loose has set it apart from other major central banks including the Federal Reserve, which are tightening monetary policy to tame soaring inflation. BLOOMBERG