China pumps $25bn in funds to banks, keeps key rate on hold

BLOOMBERG 

China injected the least amount of medium-term cash into the banking system since November, a sign that policymakers are watching the effects of past easing steps as the nation’s economic recovery appears to be on track.
The People’s Bank of China (PBOC) offered 170 billion yuan ($25 billion) of funds to banks through the medium-term lending facility (MLF). That resulted in a 20 billion yuan net injection in April, the smallest since November, 2022. It also left the interest rate unchanged at 2.75%, the eighth month for it to stand pat, as expected by a majority of economists and analysts in a Bloomberg survey.
The smaller liquidity provision indicates the PBOC is evaluating the impact of its March easing, when it had both cut a banking reserve ratio and provided more cash to support growth. Earlier data indicated that an economic recovery is taking off, with credit expansion surging and exports beating estimates.
“The outcome is in line with expectation for a small upsize. While we have long pencilled in a potential small rate cut this year, a cut does not seem to be imminent,” said Frances Cheung, rates strategist at Oversea-Chinese Banking Corp in Singapore.
China’s economy is rebounding, and the growth target of around 5% this year could be achieved as the property market improves, PBOC Governor Yi Gang said during a Group of 20 meeting.
The net injection via MLF in April marked the fifth month in a row for the central bank to take such action. The PBOC also cut the required reserve ratio for lenders in March, and that may have unleashed about 500 billion yuan of long-term funds into the financial system. China’s efforts to ensure there’s enough liquidity in markets may help stabilise borrowing costs, which is under pressure to rise as a recovering economy boosts demand to raise funds.
China’s 10-year government bond yield edged up 1 basis point to 2.84%, paring decline fuelled by speculation for a rate cut. The offshore yuan slipped 0.1% to 6.8796 per dollar.
Even as the PBOC keeps the policy rate steady, some smaller Chinese lenders have cut deposit rates in April, moves that could improve their profitability and encourage more borrowing. China’s interest rate self-disciplinary mechanism, a regulatory body overseen by the PBOC, has adjusted the assessment method for banks this year in a move to urge lenders to lower deposit rate, the 21st Century Business Herald reported.
The central bank said that the economy was recovering and refrained from repeating the line from the previous conference that there were “three pressures” of contracting demand, supply shocks and weakening expectations.