China pumps cash into banking system to support stimulus funding
CHINA injected the largest lump of cash in nearly seven years into the banking system with one-year policy loans, as funding demand will rise to bolster economic growth.
The People’s Bank of China (PBOC) offered 1.45 trillion yuan (S$278 billion) of cash to its medium-term lending facility – 600 billion yuan more than the amount coming due in November. The net injection was the most since December 2016.
The injection of extra cash may soothe jitters over tighter liquidity, as central and local governments are expected to sell more bonds to fund stimulus. Since December 2022, officials have infused more medium-term cash in the wake of a spiralling property sector and slowing demand stoking growth concerns.
All but two analysts surveyed by Bloomberg prior to the operation expected policymakers to inject liquidity on a net basis. The rate on the one-year policy loans was kept at 2.5 per cent.
“The level of liquidity injection went beyond market expectation,” said Becky Liu, head of China macro strategy at Standard Chartered. A reserve requirement ratio cut by the PBOC is still possible but the timing is less certain now, she said.
China will soon release keenly watched economic indicators, including retail sales and fixed-asset investment for October.
Beijing at the end of October approved the issuance of an additional one trillion yuan worth of sovereign bonds this year to fund projects geared towards disaster relief and climate. That will likely help investment in the coming months.
“It was a surprisingly large net injection, so may indicate that they will consider other similar policies that could also help alleviate liquidity stress,” said Rob Carnell, head of research at ING Bank in Hong Kong. “We could get further RRR cuts, but I think unless we see the yuan maintain its overnight strength, rate cuts remain off the table.” BLOOMBERG
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