(Bloomberg) — China’s central bank will probably increase the amount of cash it pumps into the money market this week to rein in funding costs.
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The People’s Bank of China will offer 450 billion yuan ($66 billion) of one-year medium-term loans to banks in February, 50% more than the amount maturing, according to the median forecast of economists surveyed by Bloomberg ahead of the Feb. 15 announcement. That’s after a gauge of overnight borrowing costs climbed to a two-year high last week.
An increase in cash injection would add to evidence that China is continuing to ease monetary conditions to revive an economy handicapped by years of tough Covid restrictions. A rapid rebound in demand and consumption since the curbs were dropped in December had tightened liquidity and left some economists questioning the need for more stimulus.
“It isn’t yet the time for PBOC to scale back liquidity support, given that economic growth haven’t fully stabilized,” said Nie Wen, chief macro analyst at Hwabao Trust Co., who expects a 500 billion yuan injection this week. He added that cuts in the key rate, or the required reserve ratio, are still possible this year if existing measures to support the economy prove insufficient.
Chinese banks extended a record 4.9 trillion yuan of new loans in January, after authorities prodded them to lend more to businesses, higher than the 4.2 trillion yuan expected by economists.
A net increase in the medium-term lending facility, or MLF, would further replenish long-term funds for banks. That’s after the PBOC ramped up injections via the seven-day reverse repo to more than 1 trillion yuan last week, easing the cash squeeze.
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 close to the PBOC’s comparable reverse repo rate, indicating that the glut of liquidity in China’s financial system last year is gone.
The narrowing gap between market and policy rates should be welcomed by the central bank, according to Zhaopeng Xing, a senior strategist at Australia & New Zealand Banking Group Ltd. It means banks will rely more heavily on funds from the PBOC, leaving it holding the cards to guide a normalization of rates, he said.
Pro-Growth Stance
Despite the recovery in some activity indicators, economists expect the PBOC to maintain a pro-growth stance as home sales continued to slump and questions remain about the sustainability and strength of the consumption rebound. Clouding the outlook are the risk of another Covid wave, and questions over when the Federal Reserve will end its rate hikes.
The PBOC may also launch new re-lending tools to provide cheap funding for banks for loans that support property projects and rental housing, ANZ’s Xing said. The combined use of regular tools and structural ones will ensure “targeted and forceful” monetary policy this year, he said.
Here are the key Asian economic data due this week:
Monday, Feb. 13: Singapore 4Q GDP, New Zealand performance services index, India CPI
Tuesday, Feb. 14: Japan 4Q GDP, Australia consumer and business confidence, New Zealand two-year inflation expectations, Singapore budget
Wednesday, Feb. 15: China one-year medium-term lending facility, Indonesia trade balance, India trade balance
Thursday, Feb. 16: Australia employment change, Japan trade balance and core machine orders, Bank Indonesia rate decision, Philippines rate decision
Friday, Feb. 17: RBA Governor speaks, Singapore non-oil domestic exports, Thailand 4Q GDP
–With assistance from David Finnerty, Fran Wang and Tomoko Sato.
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