China’s PBOC adds less cash than expected before lunar holidays

Bloomberg

China’s central bank added less cash than expected into the banking system via policy loans while keeping the rate unchanged this month even with funding demand on the rise into Lunar New Year holidays.
The People’s Bank of China (PBOC) injected a net 79 billion yuan ($11.8 billion) via its one-year medium-term lending facility this month, less than the 100 billion yuan forecast in a median estimate of a Bloomberg survey. The benchmark 10-year bond yield jumped to the highest since November 2021 following the move.
The one-year MLF rate was left unchanged at 2.75%, after two rate cuts last year, as expected by 14 out of 17 analysts in the Bloomberg survey. The rate acts as a reference for banks for their benchmark loan prime rates, the decision on which is expected on January 20.
“With reopening and the easing of financial conditions, the PBOC could save some bullets for later if needed,” Xiaojia Zhi, an economist at Credit Agricole CIB in Hong Kong said, referring to the steady MLF rate. The smaller-than-expected size of MLF cash injection shows the PBOC is becoming more precise in terms matching the banks’ needs for long-term
liquidity, she said.
The benchmark seven-day repo rate resumed its advance on Monday after falling in the previous two sessions while China’s 10-year government bond yield rose two basis points to 2.92%. Shares on the mainland and Hong Kong traded higher with the CSI 300 Index climbing more than 1%.
Meanwhile, the PBOC’s cash injection via daily open market operations extended into a fourth day as it added 154 billion yuan into the banking system. The operation was aimed at keeping liquidity ample at appropriate level, the central bank said in a statement.
The lower-than-expected cash injection via MLF is likely to fuel speculation it may use other channels to ensure there’s adequate liquidity in the banking system. That’s especially as holiday spending and tax payments are seen fuelling a liquidity deficit of around $148 billion.
Some had expected the PBOC to lower the rate after it reaffirmed its pledge to keep policy “targeted and forceful” this year. However, PBOC deputy governor Xuan Changneng said on Friday that the authorities will maintain “reasonably sufficient” liquidity for the economy this year and that the central bank would avoid flooding the
economy with massive stimulus.
The central bank may have also held back from cutting rates this month as it assesses the economic impact of a raft of measures in the New Year to encourage consumption and increase funding supply to the property sector.