A man looks at his smartphone as he walks past the People’s Bank of China building in Beijing on May 20, 2022.
Jiang Qiming|China News Service|Getty Images
China’s central bank launched new lending tools on Monday to inject more liquidity into the market and support the flow of credit in the banking system ahead of the maturity of trillions of yuan in loans at the end of the year.
The People’s Bank of China said in a statement that it launched direct reverse repurchase operations in the open market to “maintain reasonably sufficient liquidity in the banking system and further enrich the central bank’s policy toolbox.”
About 2.9 trillion yuan ($406.6 billion) of medium-term loans are due to mature between now and the end of December, making it harder for banks to fund investments and revive flagging growth in the world’s second-largest economy.
The People’s Bank of China did not mention the new tool in its open market operations statement, although it came into effect on Monday.
In a separate statement announcing the new mechanism, the People’s Bank of China said it would use the mechanism to conduct monthly transactions with open market primary dealers.
The new instrument will have a term of less than one year, the announcement said, making it longer than conventional reverse repo operations, which typically have maturities of 7, 14 or 28 days, are conducted daily and typically require collateral.
“This looks like a technical optimization and is part of the central bank’s efforts to make the monetary policy framework more practical and better regulate liquidity supply,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.
He added: “This type of repo is more common in the EU and the US, so this is a step towards modernizing the PBOC’s policy toolbox and making it more aligned with them.”
Beijing is counting on the massive financial stimulus announced in September to kick-start lending and investment as a sharp decline in the property market and weak consumer confidence weigh on investor confidence.
The People’s Bank of China has steadily lowered interest rates and injected liquidity and is now under pressure to do more to ensure economic growth this year reaches the government’s target of around 5%.
In an article published shortly after the PBOC’s notice, the state-run Shanghai Securities News cited people close to the central bank as saying the new tool would cover three-month and six-month maturities and help with liquidity next year. Adjustment.
The article added, “The central bank chose to launch this new tool at this time, and it is expected that it is also to better hedge against the concentrated expiration of medium-term lending facilities before the end of the year.”
