China’s central bank injected medium-term cash into the financial system, in an effort to keep borrowing costs stable as China’s economy continues its recovery from the virus pandemic.
The People’s Bank of China added 100 billion yuan ($15.5 billion) of one-year funds with its medium-term lending facility yesterday, matching the amount coming due in a move that was expected by analysts. The authorities kept the interest rate unchanged at 2.95%.
By rolling over the maturing funds, the operation is also seen to be supportive of the nation’s liquidity-sensitive stocks and also bonds. The cost on China’s 10-year note was little changed yesterday. In the money market, the seven-day repurchase rate rose 19 basis points to 2.19%, near its daily average level over the past year. It recently hit a four-month low.
The benchmark CSI 300 Index rose 1.5%. Data showed China’s economic activity moderated in April from its record expansion in the first quarter. That eased concerns about further tightening of fiscal and monetary policies, according to Zhang Gang, a strategist with Central China Securities Co. The nation’s top leaders recently described the recovery as “unbalanced and unstable,” pledging further efforts to drive a rebound in domestic demand.
China’s sovereign notes gained for three weeks in a row as of Friday, the longest run since January. That’s even as Treasury yields have climbed and a surprisingly quick jump in the nation’s factory-gate prices were seen to pose a challenge to current monetary policy. Factors behind the resilience include ample liquidity and capital inflows, which accelerated in April. While the loose conditions could be tested by a rise in debt sales in May, the PBOC’s vow to keep cash supply ample has boosted confidence.
“The PBOC will stay supportive of liquidity to ensure the supply of local government bonds can be readily absorbed, when inflation does not appear to be a major concern for the central bank,” said Frances Cheung, a rates strategist at Oversea-Chinese Banking Corp. Beijing will step up injecting short-term cash soon, she added. “With the expected pick-up in issuance of bonds, chance is for some net injections as and when are needed.”
The PBOC has done the minimum in its daily operations to manage short-term liquidity over the past two months. It has been injecting 10 billion yuan of cash daily – no matter the size of funds coming due – since the start of March. That’s a sign the central bank is so far pleased with the subdued volatility in the money market. MDT/Bloomberg
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