PBOC extends cash support in May after credit growth slumped

CHINA’S central bank injected more long-term liquidity into the financial system for the sixth month in a bid to bolster economic growth when multiple economic indicators revealed faltering recovery momentum.

The People’s Bank of China (PBOC) offered 125 billion yuan (S$23.95 billion) of the medium-term lending facility (MLF), 25 billion yuan more than the amount maturing in May. Eight of 10 analysts surveyed by Bloomberg prior to the operation all expected a flat rollover. The rate on the one-year policy loans was kept at 2.75 per cent, unchanged for the ninth month.

China reported softer-than-expected inflation as well as plunging imports and credit in April, increasing expectations that the PBOC may have room to step up monetary backing. Traders have been waiting for more signs of policy support, and bonds have rallied on expectations of increased assistance.

“The net liquidity injection is small if not negligible, but it sends a signal to the market that the PBOC stays supportive via quantitative tools,” said Frances Cheung, rates strategist at Oversea-Chinese Banking in Singapore.

Interbank rates measuring commercial lenders’ borrowing costs have tumbled to levels that make the more expensive MLF funds less attractive. Yields on 10-year government bonds dipped two basis points on Thursday (May 11) to their lowest level since November as money flooded into safer assets amid growth concerns and deposit rate cuts among some lenders.

The 10-year sovereign note yield edged up 1 basis point to 2.71 per cent after the operation. Offshore yuan was up slightly by 0.1 per cent at 6.9677 per dollar. The benchmark CSI 300 index has rebounded 0.1 per cent after a 0.3 per cent opening loss. BLOOMBERG