China’s central bank announced on Tuesday that it added 393 billion yuan ($62.13 billion) into the financial system. The central bank did the transaction through one-year medium-term lending facility (MLF) loans.
The People’s Bank of China released a statement on its website. There it said that interest rates for the MLF loans remain unchanged at 3.25 percent.
Authorities aim to maintain ample liquidity in the financial system to avoid the risk of a spike in lending rates. Since demand for cash surges ahead of the Lunar New Year holidays, when Chinese to splurge on gifts and celebrations.
The central bank stated that the latest MLF injection was made to step-up “fine tuning” since liquidity will be affected by several factors on the first trading day post-holiday.
The said factors contain tax payments, and maturing MLF loans. It also includes the maturing of some contingent reserve allowance (CRA) and reserve payments at financial institutions.
There’s a batch of 243.5 billion yuan of 12-month MLF loans due to mature on Thursday.
In December, the PBOC said that chosen commercial banks will be given temporary permission to keep less required reserves. This is to help them cope with the heavy demand for cash ahead of the festivities. Also, the CRA will be releasing temporary liquidity valued at almost 2 trillion yuan.
In the statement PBOC released on Tuesday, the central bank stated that reverse repos have been skipped for the 15th straight trading day.
The week-long Lunar New Year holiday will begin on February 15 and last till February 21.
China Bank Advised To Restrict New Lending Growth
China’s banks are under pressure to keep the scale of new yuan lending constant this week. This is due to regulators making efforts to curb loan growth ahead of the Lunar New Year holiday.
New loans in China set a record of 2.9 trillion yuan ($458.5 billion) in January. This is nearly five times higher than the previous month, as was said by the central bank late on Monday. It beat a previous record of 2.51 trillion yuan in January 2016.
Despite banks normally front-loading loans early in the year, the surge still exceeded expectations.
Early front-loading is done to win market share and secure higher quality customers.