China’s liquidity boost cheers markets with PBOC’s massive fund injection; economists eye rate cut

  • The People's Bank of China (PBOC) said it was keeping the rate on 1.45 trillion yuan ($203.97 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.50% from the previous operation.

Livemint
Published15 Dec 2023, 12:44 PM IST
Economists believe that the PBOC will continue easing monetary policy next year to aid the economy.
Economists believe that the PBOC will continue easing monetary policy next year to aid the economy.

China’s central bank injected a substantial amount of medium-term policy loans to boost the fragile economic growth, while keeping the interest rate unchanged.

The People’s Bank of China (PBOC) offered commercial lenders a net 800 billion yuan ($112 billion) of one-year loans, more than twice the amount estimated by analysts. This was its largest injection of medium-term policy loans ever and also larger than the infusion last month.

The move is a response to the fragility of the recovery in growth of the world’s second largest economy, marked by a housing slump and weak demand.

Also Read: PBOC's bold move: Injects $112 billion lifeline amid economic challenges

The People's Bank of China (PBOC) said it was keeping the rate on 1.45 trillion yuan ($203.97 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.50% from the previous operation.

With 650 billion yuan worth of MLF loans set to expire this month, the operation resulted in a net 800 billion yuan fresh fund injection into the banking system in December, booking the biggest monthly increase on record, Reuters reported.

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Economists believe that the PBOC will continue easing monetary policy next year to aid the economy. There is widespread anticipation that China will maintain an accommodative monetary stance and potentially implement further stimulus measures, including interest rate cuts and reserve requirement ratio (RRR) reductions, in the coming year to support economic growth.

Market reactions to these liquidity injections and support measures have been positive, with China stocks rising and the Hang Seng China Enterprises Index up more than 3%. 

“China is injecting cash to boost the medium term liquidity to commercial banks. The amount was higher than market expectations as an aid to the struggling Chinese economy. This should depreciate yuan, however dovish Fed policy is keeping all Asian currencies afloat,” said an economist with a private bank.

Also Read: US-China ties: Janet Yellen to visit Beijing again in 2024, focus on ‘difficult’ topics next year

China’s economy has struggled this year, with a weaker-than-expected rebound from Covid Zero policies and a deepening property crisis. 

The economic data released on Friday was mixed as the industrial production beat expectations, while retail sales trailed estimates in November. 

The country’s liquidity injection, coupled with ongoing policy measures, reflects the government's commitment to support economic recovery amid uncertainties. Analysts said the market is watching closely for potential interest rate cuts and reserve requirement ratio reductions as part of broader efforts to stimulate growth in the coming year.

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(With inputs from Agencies)

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First Published:15 Dec 2023, 12:44 PM IST
Business NewsEconomyChina’s liquidity boost cheers markets with PBOC’s massive fund injection; economists eye rate cut

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