(Bloomberg) — China’s central bank is likely to increase the amount of cash in money markets this week in a bid to rein in funding costs.
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The People’s Bank of China will lend 500 billion yuan ($73 billion) of one-year medium-term loans to banks in February, 200 billion yuan above the amount maturing, according to the average forecast of economists polled by Bloomberg ahead of February. is more. 15 Declaration. This comes after overnight borrowing costs climbed to a two-year high last week.
The surge in cash injections would add to evidence that China is continuing to ease monetary conditions to revive an economy crippled by years of tough Covid restrictions. A sharp jump in demand and consumption since restrictions were lifted in December had tightened liquidity and some economists questioned the need for more stimulus.
“The time has not yet come for the PBOC to reduce liquidity support, given that economic growth has not fully stabilized,” said Ni Wen, chief macro analyst at Huabao Trust Co., which injected 500 billion yuan this week. are supposed to. He added that a cut to the key rate, or the required reserve ratio, is still possible this year if current measures prove insufficient to support the economy.
Chinese banks raised a record 4.9 trillion yuan of new loans in January after authorities prompted them to lend more to businesses, more than the 4.2 trillion yuan expected by economists.
The net increase in medium-term lending facility, or MLF, would offset longer-term funding for banks. The PBOC last week increased the injection via seven-day reverse repos to more than 1 trillion yuan, easing the cash crunch.
The PBOC will probably keep the MLF rate at 2.75%, according to the survey.
The seven-day repo rate has risen from a two-year low in August to near the PBOC’s comparable reverse repo rate, indicating that China’s financial system was flooded with liquidity last year.
The narrowing gap between market and policy rates should be welcomed by the central bank, according to Zhaopeng Jing, a senior strategist at Australia and New Zealand Banking Group Ltd. card to guide the normalization of rates, he said.
pro-growth stance
Despite improvements in some activity indicators, economists expect the PBOC to maintain a pro-growth stance as home sales continue to slide and questions remain about the sustainability and strength of the consumption rebound. Clouding the outlook are the risks of another Covid wave, and the question of when the Federal Reserve will end its rate hikes.
Wang Yifeng, an analyst at Everbright Securities Co., expects a net injection of 400 billion yuan through MLFs this month, followed by another liquidity infusion of 300 billion yuan in March. The reserve-ratio could be cut for future demand, they wrote in a note.
ANZ’s Jing said the PBOC could also launch new re-lending tools to provide banks with cheaper funding for loans supporting property projects and rental housing. He said the combined use of regular instruments and structural instruments would ensure a “targeted and firm” monetary policy this year.
Here are the key Asian economic data coming this week:
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Monday, February 13: Singapore 4Q GDP, New Zealand Performance Services Index, India CPI
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Tuesday, February 14: Japan 4Q GDP, Australia consumer and business confidence, New Zealand two-year inflation expectations, Singapore budget
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Wednesday, February 15: China one year medium term lending facility, Indonesia trade balance, India trade balance
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Thursday, February 16: Australia employment change, Japan trade balance and core machine orders, Bank Indonesia rate decision, Philippines rate decision
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Friday, February 17: RBA governor speaks, Singapore non-oil domestic exports, Thailand 4Q GDP
–With assistance from David Finnerty, Fran Wang and Tomoko Sato.
(Updated with latest survey results in second paragraph)
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