China central bank upgrades fund addition via medium-term policy loans
China's central bank ramped up liquidity injections when rolling over maturing medium-term policy loans for a fourth month in a row on Wednesday, while keeping the interest rate unchanged, matching market expectations.
The higher fund injection suggested that the authorities are keen to keep the market supplied with sufficient long-term funds, while Beijing's modest economic growth target for this year showed policymakers are comfortable with the current pace of recovery from the COVID-19 slump in activity.
Investors believe that chances of a massive monetary easing are low as a broad economic recovery is underway following Beijing's exit from stringent zero-COVID strategy late last year.
The People's Bank of China (PBOC) said it was keeping the rate on 481 billion yuan ($70.03 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions at 2.75%, unchanged from the previous operation.
In a poll of 28 market watchers conducted this week, all participants expected the MLF rate to stay unchanged, with 20 predicting fund offerings would exceed the maturity.
With 200 billion yuan worth of MLF loans set to expire this month, the operation resulted in a net 281 billion yuan of fresh fund injections into the banking system.
The central bank said Wednesday's loan operation was meant to "keep banking system liquidity reasonably ample" to fully meet cash demand from financial institutions, it said in an online statement.
The higher cash injection would "ease liquidity pressure," said Xing Zhaopeng, senior China strategist at ANZ.
"The nearly 500 billion yuan of fund offerings indicated that the probability of a reduction to the reserve requirement ratio (RRR) in the near term is not high," Xing said, expecting market rates could climb higher.
Xing added that China's modest economic growth target for this year also suggested that chances for further monetary easing would be very slim.
China set the target for economic growth this year at around 5% at the annual session of the National People's Congress (NPC). The target was at the low end of expectations, as policy sources had recently told a range as high as 6% could be set. It is also below last year's target of around 5.5%.
The central bank also injected 104 billion yuan through seven-day reverse repos while keeping the borrowing cost unchanged at 2.00%, it said in an online statement.
($1 = 6.8680 Chinese yuan)