PBOC adds more cash into economy as recovery gathers pace
CHINA’S central bank ramped up efforts to accelerate an economic recovery, releasing more cash into markets as data shows fresh encouraging signs for the country’s growth momentum.
The People’s Bank of China (PBOC) added a net 191 billion yuan (S$36.3 billion) into the financial system via a one-year policy loan on Friday (Sep 15). This came a day after announcing another cut to lenders’ reserve requirements, a move that could free up as much as 500 billion yuan by some estimates. It also injected 34 billion yuan via a 14-day money-market loan.
The central bank kept the medium-term lending facility (MLF) borrowing cost, a policy rate, unchanged at 2.5 per cent, after a surprise 15-basis-point cut last month.
The series of cash injections by the PBOC indicate policymakers’ intention to solidify the momentum of economic recovery, with August data from industrial production to retail sales showing further signs of improvement. The latest monetary easing and upbeat economic indicators appear to have revived risk appetite among investors, pushing up the yuan and yields on Chinese government debt.
“The outsized MLF together with the more permanent liquidity released from the reserve requirement ratio cut shall provide strong support to the market,” said Frances Cheung, a rates strategist at OCBC. “The unchanged MLF rate suggests policy focus moves away from the price of money to more direct support via fiscal spending and liquidity injection.”
The PBOC’s liquidity boost comes as more green shoots are emerging in the world’s second-largest economy, with data showing activity gathered pace in August amid a summer travel boom and in the wake of a stimulus push. That added to a recent credit rebound and easing deflationary pressures.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The funding support may also be intended to cater to banks’ need to meet seasonal demand arising from regulatory requirements, as well as a surge in local government bond issuance.
In Friday’s money market operation, the PBOC also slashed the interest rate on the short-term loan by 20 basis points. The rate reduction does not necessarily signal fresh policy easing as it is considered a follow-up move after last month’s 10-basis-point cut to the cost of seven-day loans.
The yuan rose about 0.2 per cent against the US dollar after the August data release, while the yield on China’s 10-year government bond gained 3 basis points to 2.65 per cent.
“It appears the economy has been bottoming out. I think the worst for CNY is probably behind you,” said Zhou Hao, chief economist at Guotai Junan in Hong Kong, adding that he expects policymakers to cut interest rates further and push out more supportive measures. BLOOMBERG
Share with us your feedback on BT's products and services
